Annexes to SEC(2009)1003 - Annex to the 2008 Report from the Commission on the protection of the EC’ financial interests and the fight against fraud STATISTICAL EVALUATION OF IRREGULARITIES- OWN RESOURCES, AGRICULTURE, STRUCTURAL MEASURES, PRE-ACCESSION FUNDS AND DIRECT EXPENDITURE -YEAR 2008 - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | SEC(2009)1003 - Annex to the 2008 Report from the Commission on the protection of the EC’ financial interests and the fight against fraud ... |
|---|---|
| document | SEC(2009)1003  |
| date | July 15, 2009 |
STATISTICAL EVALUATION OF IRREGULARITIES- OWN RESOURCES, AGRICULTURE, STRUCTURAL MEASURES, PRE-ACCESSION FUNDS AND DIRECT EXPENDITURE -YEAR 2008
{COM(2009) 372}
{SEC(2009) 1002}
TABLE OF CONTENTS
1. The situation in 2008 6
1.1. Introduction 6
1.2. Key Facts 9
1.2.1. Traditional Own Resources 9
1.2.2. Agriculture 9
1.2.3. European Fishery Fund 10
1.2.4. Structural Measures 10
1.2.5. Pre-accession Funds 10
2. TRADITIONAL OWN RESOURCES (ANNEXES 1-10) 11
2.1. Management of Traditional Own Resources (TOR) 11
2.1.1. Monitoring of establishment and recovery of TOR 11
2.1.2. Procedure for managing Member States’ requests for write-off 12
2.1.3. Particular cases of Member State failure to recover TOR 13
2.2. Reporting discipline 13
2.2.1. Year of discovery versus year reported 14
2.3. General trends 14
2.3.1. Method of detection 15
2.3.2. Types of irregularity and fraud 15
2.3.3. Data main sectors TOR 16
2.4. Specific analysis 17
2.4.1. TOR and cigarettes 17
2.4.2. Classification of irregularities and fraud by Member States 17
2.5. Recovery 17
2.5.1. Corrections to established amounts 17
2.5.2. Recovery rates 18
2.5.2.1. Recovery rate (RR) 18
2.5.2.2. Historical recovery rate (HRR) 19
2.5.3. Recovery indicators 20
2.5.3.1. Recovery rates in case of fraud 20
2.5.3.2. Recovery rates in case of MA communications 21
2.5.3.3. Recovery rates by method of detection 22
2.5.3.4. Recovery rates by category of amount 22
2.5.3.5. Recovery rates by origin 23
2.5.4. Write-down and write-off of established amounts 23
2.5.4.1. Written down when recovery is unlikely 23
2.5.4.2. Written off when the debt is deemed irrecoverable 23
2.5.4.3. Estimation of the recovery of established amounts 24
2.5.5. Impact on the budget 24
2.6. Conclusions 26
3. AGRICULTURAL EXPENDITURE (Annexes 11-12) 28
3.1. Reporting discipline 29
3.1.1. Timely reporting (Art. 3(1) Reg. 1848/2006) 31
3.1.2. Budget year, budget line and product affected (Art. 3(1) (a) Reg. 1848/2006) 31
3.1.3. The moment at which the irregularity was committed (Art. 3(1) (i) Reg. 1848/2006) 32
3.1.4. Practices employed and classification (Art. 3 (1) (e) (f) Reg. 1848/2006) 32
3.1.5. Legal/natural persons identification (Art. 3 (1) (l) Reg. 1848/2006) 33
3.1.6. Financial impact (Art. 3 (1) (n) Reg. 1848/2006) 34
3.2. General Trends 35
3.2.1. Amounts affected 35
3.2.2. Impact on the budget 37
3.2.3. Method of detection 39
3.2.4. Types of irregularity 43
3.3. Specific Analysis 47
3.3.1. Analysis of support measures 47
3.3.2. Irregularity versus suspected fraud 51
3.4. Recovery and sanctions 53
3.4.1. Recovery 53
3.4.2. Sanctions 55
3.5. Conclusions 57
4. European Fishery Fund 60
5. Structural measures (Annexes 13-17) 61
5.1. Reporting Discipline 62
5.2. General Trends 64
5.2.1. Overall trends 64
5.2.1.1. Trends related to the Funds 65
5.2.1.2. Trends related to Member States 67
5.2.2. Amounts involved 67
5.2.2.1. The four Structural Funds 69
5.2.2.2. The Cohesion Fund 71
5.2.3. Impact on budget 71
5.2.4. Detection methods 72
5.2.5. Types of irregularity 73
5.2.6. Suspected frauds 74
5.3. Specific analysis – Irregularities related to the programming period 2000-2006 77
5.3.1. Irregularities affecting the different funds 79
5.3.2. Irregularities by Objective 80
5.3.3. Suspected frauds 82
5.3.4. Irregularities detected before payment 83
5.4. Recovery 84
5.5. Conclusions 85
6. PRE-ACCESSION FUNDS (ANNEXES 18-21) 88
6.1. Reporting discipline 89
6.1.1. Timely reporting 89
6.1.2. Time gaps 90
6.1.3. Classification of irregularity 90
6.1.4. Summary 91
6.2. General Trends 92
6.2.1. Overall trend 92
6.2.2. Trend related to Member States and Candidate countries 93
6.2.3. Amounts involved 94
6.2.4. Impact on the budget 96
6.2.5. Method of detection 97
6.2.6. Types of irregularities 99
6.3. Specific analysis 100
6.3.1. Irregularities affecting different funds 100
6.3.2. Irregularity vs suspected fraud 102
6.3.3. Recovery 105
6.4. Conclusions 107
7. Direct Expenditure – Centralised direct Management 109
7.1. Methodology and scope 109
7.2. General analysis 110
7.2.1. Financial amounts involved 110
7.2.2. Financial amounts involved by geographical area and Member State 112
7.2.3. Method of detection 115
7.2.4. Types of irregularity 116
7.3. Specific analysis 119
7.3.1. Irregularity versus Suspected Fraud 119
7.3.2. Time delay 119
7.4. Recovery 120
7.5. Conclusions 121
1.The situation in 2008
1.1.Introduction
According to article 274 of the Treaty on the European Community, the European Commission shall implement the budget. Council Regulation (EC, Euratom) No 1605/20021 of 25 June 2002 on the Financial Regulation (FR) applicable to the general budget of the European Communities indicates that the Commission implements the budget:
- on a centralised basis: implementation tasks are performed either directly by its departments or indirectly by executive agencies created by the Commission, bodies set up by the Communities - provided that this is compatible with the tasks set out in the basic act - and, subject to certain conditions, national public-sector bodies or bodies governed by private law with a public-service mission;
- on a shared or decentralised basis: implementation tasks are delegated to the Member States (shared management) or third countries (decentralised management); the Commission applies clearance-of-accounts procedures or financial correction mechanisms enabling it to assume final responsibility for the implementation of the budget;
- by joint management with international organisations: certain implementation tasks are entrusted to international organisations.
Community legislation provides for the protection of the Community’s financial interests in all areas of activity2. The FR sets the principles and rules for the correct implementation of the budget. Member States are required to notify the Commission of evidence of fraud and other irregularities. This need is particularly evident in those sectors of the Community budget where the main responsibility for management is with the Member States, namely, in the fields of Agriculture and Structural Funds (on the expenditure side) and Own Resources (on the revenue side). In these areas, Member States must inform the Commission of all irregularities involving more than €10,000 of community finances. This applies at all stages in the procedure for recovering monies unduly paid or not received.
Regulation No. 1848/20063 specifies the requirement for the agriculture sector, Regulations Nos. 1681/944 and 1831/945, as amended, respectively by Regulations Nos. 2035/2005 and 2168/2005, for structural measures and Regulation No. 1150/2000 for own resources. In the case of pre-accession funds the obligation to report irregularities is specified in Community legislation and in the Pre-Accession and Accession Agreements the European Community and the Candidate and Acceding States.
The European Parliament and the Council adopted a series of Regulations introducing a new system for the Structural Funds for the new 2007-2013 programming period6. The rules on reporting irregularities to the Commission have been retained, but the communication procedure is now part of the implementing Regulations7 rather than a separate Regulation, as was previously the case. The old Regulations have been repealed, but will continue to apply with reference to former programming periods.
The provisions to be followed are mostly based on the Commission Regulation (EC) No 1681/1994. Member States are required to report irregularities under Article 3 of these regulations (for own resources the relevant provisions are contained in Article 6, paragraph 5. For agriculture, the relevant provisions are contained in article 3) within two months of the end of each quarter. Under Article 5 (again, Article 6, paragraph 5 for own resources) they have to submit updates of the cases communicated and relevant information about the financial, administrative and judicial follow-up.
The distinction between irregularities and fraud is that fraud8 is a criminal act that can only be determined by the outcome of judicial proceedings. As such, it is only when the judicial procedure has come to an end that the actual amount of fraud can be determined. While awaiting the results, the Commission works on the basis of the information supplied by Member States concerning cases of irregularities some of which, in the opinion of the reporting Member States, give rise to suspicions of fraud. The Commission's statistical assessment of and ability to respond to, irregularities are influenced by the accuracy and timeliness of the notifications made by the Member States.
The practices of the national administrations still vary, though improvements have been achieved thanks to the efforts made to harmonise their approaches. The data communicated by Member States is sometimes incomplete. Furthermore, the distinction between “suspected frauds” and other irregularities is not consistent as Member States do not always have the same definition of criminal risk. Consequently, a significant proportion of communications received by the Commission do not distinguish between suspected fraud and irregularity.
The Commission works in close cooperation with the Member States to improve the notification system for irregularities, in particular to clarify the concepts of “fraud” and “irregularity”9 and as a result of this, attempts to measure the possible economic impact of fraud in certain sectors have been made. However, for the reasons outlined above, the figures presented below should be interpreted with caution. It would be particularly inappropriate to draw simple conclusions about the geographical distribution of fraud or on the efficiency of the services which contribute to the protection of financial interests.
The present document is divided in two parts.
The first is dedicated to the analysis of irregularities reported in the area of the Traditional Own Resources (Revenues). The implementation mode for this part of the budget is that described under letter b. – shared management.
The second is composed of 5 chapters dedicated, respectively, to Agricultural expenditure, European Fishery Fund, Structural measures (for these three sectors the management mode is that indicated under letter b. – shared management), Pre-accession Assistance (the implementation mode for this sector is indicated under letter b. – decentralised management) and Direct expenditure (whose implementation mode is that described under letter a.).
1.2.Key Facts
Annex 22 gives an overview of all irregularities communicated by Member States under Regulation No. 1848/2006 for the agriculture sector, Regulations Nos. 1681/94, 1831/94 and 1828/2006 for structural measures and Regulation No. 1150/2000 for own resources.
In general, the number of irregularities notified for the year 2008 has decreased by 2%.
The following paragraphs will provide details concerning the different sectors of the budget analysed in this document.
The total number of irregularities has increased for traditional own resources and structural funds. It has also increased for the pre-accession funds. It has decreased for the cohesion fund and agriculture.
However, the total financial amounts affected by irregularities notified for the year 2007 has increased/decreased by 23.6%.
The total amounts affected by irregularities have increased for traditional own resources and the pre-accession funds. They have decreased for agriculture, structural and cohesion funds.
1.2.1.Traditional Own Resources
In 2008, the number of cases of irregularities communicated by the Member States decreased from 6,097 to 5,344. Consistently, the amount of TOR decreased from EUR 401 million to EUR 351 million.
Of all the cases registered in 2008 20% (1,073 out of 5,344 registered cases) are categorised as frauds.
1.2.2.Agriculture
Member States reported 1,133 new irregularities compared with 1,548 in 2007. The total amount affected in 2008 was about EUR 102.3 million, as against approximately EUR 155 million in 2007.
Irregularities notified in this sector represent 0.21% of the agricultural budget (see annexes 11 and 12).
1.2.3.European Fishery Fund
No irregularities have yet been reported concerning the European Fishery Fund on the basis of Commission Regulation (EC) No 498/2007.
1.2.4.Structural Measures
In 2008 Member States reported 3,960 irregularities under Regulation (EC) No 1681/94 which covers the four Structural Funds and 140 under Regulation (EC) No 1831/94 (on the Cohesion Fund). The total amount affected by irregularities in 2008 was almost EUR 585 million, EUR 528.6 million of which was from the Structural Funds and EUR 56.3 million from the Cohesion Fund. Irregularities reported in this sector were equivalent to 1.25% of the budget allocated to structural measures in 2008.
In 2007, Member States reported 3,858 irregularities under Regulation (EC) No 1681/94 which covers the four Structural Funds and 140 under Regulation (EC) No 1831/94 (on the Cohesion Fund). 9 irregularities were reported under Regulation No 1828/2006, which covers the programming period 2007-2013. The total amount affected by irregularities in 2008 was about EUR 585.2 million, EUR 528.9 million of which was from the Structural Funds and EUR 56.3 million from the Cohesion Fund. Irregularities reported in this sector were equivalent to 1.25% of the resource allocations for 2008.
For the first time irregularities related to the programming period 2007-2013 (whose reporting is disciplined by Regulation (EC) No 1828/2006) were reported to the Commission.
1.2.5.Pre-accession Funds
In 2008 the Commission/OLAF received 2,133 reports on pre-accession funds (PHARE, SAPARD, ISPA, Transition Facility (TF), CARDS, Turkish pre-accession instrument (PA)) from the Member states and Candidate countries. The received information consists of 523 new cases detected by the national authorities in 2008 and 1,610 follow-up reports on the previously reported cases. The number of new cases received on pre-accession assistance is the highest since the reporting obligation started to be fulfilled by the reporting countries.
The total amount affected by irregularities in 2008 was EUR 60,782,354 where PHARE accounts for EUR 26,731,257 (183 cases), SAPARD – EUR 29,046,300 (213 cases), ISPA – EUR 4,055,042 (99 cases), TF – EUR 545,822 (4 cases), PA – EUR 314,763 (18 cases), CARDS – EUR 89,170 (6 cases).
PART I - REVENUES
2.TRADITIONAL OWN RESOURCES (ANNEXES 1-10)
2.1.Management of Traditional Own Resources (TOR)
The Community must have access to Traditional Own Resources (‘TOR’)10 under the best possible conditions. In conformity with Regulation (EC, Euratom) 1150/200011 Member States are responsible for making available to the Commission, within the deadlines set, TOR that they have established. Established amounts of customs or agricultural duties that have been recovered and debts that are guaranteed and not under appeal are to be made available via the A-account. However, where TOR have been established by a Member State but not yet recovered and where no security has been provided or the established amount has been disputed Member States may enter these TOR amounts in the B-account. These amounts of TOR are not then made available until actually recovered. Most fraud and irregularity cases relate to B-account items.
2.1.1.Monitoring of establishment and recovery of TOR
In order to get the right picture of Member States’ TOR recovery activity it is important to keep in mind that over 95% of all amounts of TOR established are subsequently recovered without any particular problem. These amounts are entered in the A-account and made available to the Commission. This covers most of the ‘normal’ import flows where release for free circulation gives rise to a customs debt. The remaining exceptional items are entered in the B-account. This proportion should be borne in mind when evaluating Member States’ recovery activity.
In return for their collection task, and to support sound and efficient management of public finances, Member States may keep 25% of the amounts involved. In its capacity as Authorising Officer responsible for executing the EU budget, the Commission (DG Budget as delegated Authorising Officer) monitors Member State activity concerning establishing and recovering TOR.
The following three methods are used:
1. Overall monitoring of recovery of TOR via the write-off procedure;
2. Regular inspection in Member States of the establishment and recovery of TOR, and B-account entries;
3. Specific monitoring of Member States’ follow-up of recovery in individual cases which have a significant financial impact and involve Mutual Assistance. This particular task is performed in close co-operation with the European Anti-Fraud Office (OLAF) where OLAF has issued the Mutual Assistance message in question and/or has an operational interest in the case concerned.
These three methods allow the Commission to monitor Member States’ performance without interfering too much in their day-to-day operations.
2.1.2.Procedure for managing Member States’ requests for write-off
Member States must take all requisite measures to ensure that amounts corresponding to the entitlements established are made available to the Commission. This requirement is in Article 17(1) of Regulation 1150/2000. Article 17 also provides that a Member State may only be released from its obligation where established entitlements prove irrecoverable either:
(a) for reasons of force majeure; or
(b) for other reasons which cannot be attributed to that Member State.
Amounts of established entitlements become irrecoverable by one of two routes. The first is by a decision of a Member State declaring that they cannot be recovered — this declaration may be made at any time. However, TOR must be deemed irrecoverable by a Member State at the latest five years from the date on which the amount was established, or in the event of an administrative or judicial appeal, the final decision was given, or the last part-payment of an established amount was made, whichever is the later. Where the irrecoverable amount of TOR exceeds a threshold of €50 000 the write-off must be reported to the Commission. For amounts under €50 000, Member States do not have to communicate the case to the Commission unless the Commission makes a specific request.
A 2004 amendment to Regulation No 1150/200012 introduced the five-year timeframe within which a Member State has to provide the Commission with information on amounts of established entitlements of TOR deemed irrecoverable. In 2008 the already expected marked increase in requests by Member States to write off established TOR amounts deemed irrecoverable indeed occurred. Compared with 2007 the number went up from 100 to 589 requests. This effect will probably continue in 2009. The increase primarily consisted of old cases not yet reported to the Commission, but meeting the five-year deadline triggering application of the write-off procedure.
A new IT application called WOMIS13 will be introduced in 2009 to support Member States and DG Budget in managing write-off requests.
In 2008 589 write-off requests amounting to €188 760 951.04 were communicated to the Commission by 13 Member States. In total, 465 requests were processed in 200814 with the following result15:
TABLE OR 1
| Commission position | cases | % cases | € | % amount |
| UNSUITABLE EXEMPTION REQUEST | 2 | 0.43% | 41,339.05 | 0.05% |
| WRITE-OFF ACCEPTED | 132 | 28.39% | 17,338,091.14 | 13.63% |
| ADDITIONAL INFORMATION REQUIRED | 299 | 64.3% | 92,320,654.22 | 72.61% |
| WRITE-OFF REFUSED | 32 | 6.88% | 17,434,228.42 | 13.71% |
| TOTAL | 465 | 100% | 127,134,312.83 | 100% |
Examination of Member States’ diligence in these cases constitutes a very effective mechanism for gauging their activity in the field of recovery. It encourages national administrations to step up the regularity, efficiency and effectiveness of their recovery activity, since any lack of diligence leading to failure to recover results in individual Member States having to foot the bill. During 2008 over €14 million was paid by Member States because of refused write-offs.
2.1.3.Particular cases of Member State failure to recover TOR
Where TOR is not established because of an administrative error by a Member State the Commission applies the principle of financial liability16. As a result up to 2008 over €70 million was paid by Member States, aside from interest on late payment17.
Altogether the cases of financial liability dealt with by DG Budget up until the end of 2008 total nearly €260 million. The main objective of this procedure is to encourage individual Member States to improve their administrations’ performance and to address weaknesses leading to a loss of TOR and national taxes. This money is in effect transferred back to the Member States in proportion to their contribution to the EU budget as it reduces their contributions via the GNI resource.
2.2.Reporting discipline
Under Article 6(5) of Regulation 1150/2000, Member States are required to communicate to the Commission, via the OWNRES system18, cases of fraud and irregularity where the TOR amount exceeds €10 000. The requirement to report such cases is designed to inform the Budgetary Authority of the state of play relating to fraud and irregularities in TOR. This political dimension is a clear signal to all stakeholders of the importance of prompt, accurate and complete reporting. The OWNRES database is a key tool for obtaining data for global analyses of fraud and irregularities, and presents valuable information to the Budgetary Authority.
Because all TOR amounts exceeding €10 000 in the B-account represent an irregularity (fraud included) by definition the match between the two from the standpoint of the B-account should be 100%19. This match is checked during the regular inspections in the Member States; however, no significant shortcomings have been found in recent years.
OWNRES is not a reliable source of data on fraud alone, isolated from irregularity. This is because (until a court judgment is obtained) the distinction between fraud and irregularity is usually made on subjective grounds. These grounds vary greatly between national administrations and so the results cannot be relied upon. Please bear these considerations in mind when looking at the following analysis of OWNRES data.
2.2.1.Year of discovery versus year reported
Cases should be included in OWNRES upon the initial discovery of the irregularity or fraud case. As a result the year of the customs operation and the year of discovery of the irregularity or fraud can diverge. Member States are continually adding new cases and updating existing items. So the information generated by OWNRES represents the situation on the date of the query. For instance, the number of irregularities and frauds concerning 2007 in last year’s report was 5 321 cases whereas the number of cases now shown for 2007 is 6 097 cases20. This continuing development is inherent to the system.
2.3.General trends
The number of cases communicated to OWNRES for 2008 is currently 12.5% lower in comparison with 2007 (from 6 097 to 5 344), and the amount of TOR involved is likewise 12.5% smaller (from €401 million to €351 million)21. The trend for the number of belatedly discharged Community Transit operations to decrease continued22, and the amount involved decreased as well. In the case of Transit practice shows that up to 90% of the initially established debts are ultimately cancelled, because of proof of regular discharge after all.
While the number of communications from the ten new Member States showed continued growth since their accession in 2004 until 2007, in 2008 this growth stopped. 2008 shows 3% less cases when compared with 2007 whereas when 2007 was compared with 2006, it showed growth of 16%. If the comparisons are made using the amounts of TOR, the rates are -8% and 28% respectively.
The OWNRES database now contains 51 412 cases in total (1989-2008), showing an increase of nearly 14% during 200823. Significant changes in the number of registrations in 2008 compared with 2007 can be seen for Romania (+ 103%), Malta (- 70%), Sweden (+ 63%), Greece (- 44%) and Slovakia (- 43%). Significant changes in amounts can be seen in Estonia (+ 221%), Sweden (+ 173%), the Czech Republic (+ 119%), Romania (+ 90%), the Netherlands (+ 82%) and Austria (- 86%)24.
2.3.1.Method of detection
A variety of detection methods can reveal irregularity or fraud. Judging from the 2008 data the most fruitful methods are national post-clearance inspections and primary national inspections (either physical inspections or inspections of documents — the latter category featuring most frequently). Post-clearance inspections feature in 47% of the cases discovered whereas primary national inspections cover 30%.
It is clear that the shift which could already be seen in previous years from primary to post-clearance inspections continued in 2008. It marks the beginning of a trend related to ongoing changes in declaration and control procedures. The relative importance of inspections by anti-fraud services was stable with 6% in 2008 compared to 7% in 2007. Since the final results of such inspections take more time than regular inspections, a (slight) increase in the percentage for 2008 may be expected in future registrations.
CHART OR 1: Methods of detection 2006-2008
2.3.2.Types of irregularity and fraud
A breakdown of frauds and irregularities by customs procedure and by mechanism type confirms that release for free circulation is the procedure most commonly specified (67% of cases25). False declarations (misdescription, incorrect value, origin and preferential arrangements) and formal shortcomings (failure to fulfil obligations or commitments) are the mechanisms most frequently mentioned, but also smuggling is highly placed.
The goods (defined by the first two numbers of the CN code26) most affected by fraud and irregularities in 2008, as in previous years, are TVs/monitors etc. (CN 85) and tobacco products (CN 24). Clothing (CN 61-62) increased in importance when compared to 2007 as did machines (CN 84), plastics (CN 39) and meat (CN 02), whereas (parts of) cars and motors (CN 87) remained relatively stable and vegetables (specifically garlic) (CN 07) went down27. Footwear (CN 64), first placed in 2007, has completely disappeared out of the top 25 in 200828. The variety of goods in the top 25 (defined by the first two numbers of the CN code) is stable at 14 to 15 types since 2006.
CHART OR 229: Fraud and irregularities breakdown by goods in 2008 in MEUR
Analysis of the origin of goods subject to fraud and irregularity30 reveals that, just as in 2007, goods originating from China, Japan, the US, South Korea, Bangladesh and Brazil remain very much affected. The number of cases in the origin category non-specified decreased, as in previous years, in parallel with the decrease in Transit cases.
2.3.3.Data main sectors TOR
See Annexes 1-10.
2.4.Specific analysis
2.4.1.TOR and cigarettes
In 2008 there were 255 cases registered of seized and confiscated cigarettes (CN code 24 02 20 90) involving estimated31 TOR of over €22 million. In 2007 the number of registered cases concerning seized and confiscated goods was 188, totalling over €16 million. The growth of the number of cases is related to the EUR-15, of which the UK shows the most significant increase, from 42 cases in 2007 up to 100 cases in 2008. This is primarily caused by improvements in registration.
2.4.2.Classification of irregularities and fraud by Member States
OWNRES cases concern customs operations involving irregularity or fraud. Of all the cases registered in 2008 20% (1 073 out of 5 344 registered cases) are categorised as frauds, which is a slightly smaller proportion than in 2007 (1 404 out of 6 097 registered cases)32. However, differences between Member States in the proportion so categorised are relatively large. For instance, in 2008 the United Kingdom categorised 93 out of 1 023 cases as fraud (equivalent to 9.09%) whereas Greece so categorised 100% (32 out of 32 cases communicated), Latvia 0.00% (0 out of 40 cases) and France 39.55% (123 out of 311 cases notified). For 2007 the figures were for the UK 9.70% (104 out of 1 072), for Greece 100% (57 out of 57), for Latvia 0.00% (0 out of 25 cases) and for France 46.79% (153 out of 327). These figures demonstrate that the categorisation of irregularity and fraud in OWNRES is not fully reliable.
2.5.Recovery
Member States have to recover established amounts including those they register in OWNRES. In OWNRES cases are registered as open or as closed. A case is registered as closed when all (legal) procedures have come to an end and the debt is paid or further recovery measures by the Member States’ authorities are deemed exhausted. Also cases of smuggled and seized goods (usually cigarettes) are registered as closed33.
A case is registered as open when recovery measures are still ongoing. This means that either legal procedures (administrative and judicial appeal) are still ongoing, which may lead to a correction of the established amount, or to success or failure to obtain payment of the debt, whether or not after coercive recovery.
2.5.1.Corrections to established amounts
For a variety of reasons an established amount may not be completely recovered, despite Member States’ efforts. The proportion varies from Member State to Member State.
Amounts established may change because of additional information or judicial procedures when, for instance, revision shows that there was no customs debt after all or the value or origin of the goods is different than initially thought.
OWNRES shows — for all closed cases — that approximately 50% of the initial establishment amount is corrected (cancelled). For closed cases related to Community Transit this may reach up to 90%. As a consequence, Belgium and the Netherlands show more corrections than average, because establishments related to Community Transit likewise occur more. This is due to the ports of Antwerp and Rotterdam.
2.5.2.Recovery rates
Differences in recovery results arise from factors such as the type of fraud or irregularity or the type of debtor involved. The debt may also be deemed irrecoverable because of the debtor’s financial problems. There are different definitions expressing the results of recovery of a debt.
2.5.2.1.Recovery rate (RR)
I
Recovered amount because of payments obtained (all cases)
RR = ------------------------------------------------------------------------------------ x 100%
Established amount (all cases) minus processed corrections (all cases)
n previous reports the term Recovery Rate (RR) was used. It expressed — for all cases (open and closed) in OWNRES — the percentage that is recovered by obtaining payment. The formula for the RR is:
The outcome is a snapshot of the average recovery situation at the moment of the query. The established amount minus processed corrections can change, because further corrections (cancellations) are still possible34. As a result, when the denominator decreases in value, the percentage of the RR goes up, even without having more actual payments. Because recovery is ongoing, the RR is constantly changing (payments are obtained, new establishments are made and corrections are taken into account). The RR for all years (1989-2008) is 42.8%35.
The overall RR for 2007 recorded in last year’s report was 39.9% although it has since climbed to 49.7%. At present the RR for 2008 is 37.5%36, which is an average starting position, although less good than last year’s 40%. Over the last decade the RR has varied between 40% and 55% (see OR: Chart 3).
The 10 Member States which acceded in 2004 are now carrying out post-clearance controls, audits and inspections covering longer periods after their accession. For establishments following these controls recovery is generally more problematic. As a result the rates of the EUR-15 and EUR-10 are now growing closer to each other.
The RR for Romania and Bulgaria is high when corrected for cases of smuggled and seized cigarettes. Currently it is significantly above the average rate of the EUR-27. This is primarily the result of recovery in one big case by Romania. It may be expected that in time the RR for the EUR-2 will also grow towards the average of the other Member States.
CHART OR 3: Recovery rates 1996-2008
* For 2001 the average RR is only 28%, because of the impact of Italy’s RR, which is 2.2 % on an established amount of €93 million.
2.5.2.2.Historical recovery rate (HRR)
The RR mentioned in paragraph 2.5.2.1. does not reflect the percentage of the actual debt for which payment is obtained by the Member States. For that, the rate of recovery of the actual amount to be paid after all corrections (revisions because of appeal procedures, requests for repayments or remissions, etc.) should be taken into account (hereafter: HRR — historical recovery rate).
T
Recovered amount because of payments obtained (closed cases)
HRR = -------------------------------------------------------------------------------------------- x 100%
Established amount (closed cases) minus processed corrections (closed cases)
o determine the HRR, only closed cases37 should be analysed, since for those the Member States have brought all their recovery efforts to an end. The formula for the HRR is:
The HRR is around 80% according to OWNRES38. In other words, of every €10 000 of duties operators really and ultimately have to pay for OWNRES cases, approximately €8 000 is collected. The amount not collected relates to either amounts written off or amounts involved in seized and confiscated goods.
2.5.3.Recovery indicators
Success in recovery depends on many factors. OWNRES provides categories of information that may be useful as indicators to forecast such success by means of extrapolation, since the recovery rate by (combination of) indicator(s) appears relatively constant over time.
Useful recovery indicators in OWNRES are fraud, type of customs procedure, the presence of an MA communication, method of detection and origin of the product. Combinations of these indicators improve the accuracy of the prognosis further. Of course the final outcome of an individual case will always depend on its unique particulars.
2.5.3.1.Recovery rates in case of fraud
OWNRES shows that the amount of TOR due in fraud cases decreased in 2008. As part of the overall amount of irregularities and fraud cases registered the share of fraud was €75 million compared to €131 million in 200739. This amount includes duties involved in cases of seized and confiscated cigarettes.
The RR for fraud provides insight into the immediate effect of fraud on today’s recovery. The amount recovered in fraud cases was €19 million in 2008, which gives a fraud RR of 25.9%. For 2007 the total has reached €35 million, which gives an RR of 26.6%. The result for 2008 is good compared with the previous years. For instance, 2006 currently shows an RR for fraud cases of 22.8%. As mentioned before, the recovery rates change as time passes (paragraph 2.5.2.1.). The RR in fraud cases is clearly much lower than that for irregularities since the RR in 2008 for those cases is 40.7%. The RR for all years (1989-2008) for fraud and irregularity combined is 42.8%.
Also in the long term, the HRR indicates an equally strong relation, showing that recovery in fraud cases is generally much less successful than in cases of irregularity (see table below). Classification of a case as fraud is thus a strong indicator for forecasting short- and long-term recovery results.
TABLE OR 2: Historical Recovery Rate 1989-2005
| HRR 1989 – 2005 | |
| Fraud | 43% |
| Irregularity | 89% |
| Total | 82% |
2.5.3.2.Recovery rates in case of MA communications
Establishments following an MA communication display higher recovery rates. OWNRES shows that the HRR is over 90% for cases with an MA reference, whereas for establishments without such reference the output is just over 80%. Based on these figures it may be concluded that Member States are more alerted in the case of such communications than in normal situations.
TABLE OR 3: Historical Recovery Rate for MA communications
| HRR 1989 – 2005 | |
| No MA reference | 81.5% |
| With MA reference | 92.5% |
| Total | 82.2% |
2.5.3.3.Recovery rates by method of detection
The relation between the recovery rates and the methods of detection may be considered significant when there is a voluntary admission / correction by the importer, or when the case is discovered during primary national inspections. In those circumstances the HRR is over 95% respectively 85.2%. When the establishment is the result of inspections (e.g. by anti-fraud services) the HRR drops to 79.7% thus only being slightly lower than in the case of regular post-clearance audits (80.8%). Also when the method of detection is combined with the types of cases discovered (fraud or irregularity), the ratios do not change significantly.
CHART OR 4: Recovery Rate by method of detection
2.5.3.4.Recovery rates by category of amount
The RR is strongly influenced by the amounts involved, whereas for the HRR this relationship is no longer significant. The figures for the last five years show that bigger amounts result in a lower RR. For amounts below €50 000 the RR is up to 75%, for amounts up to €500 000 the RR of 50% to 60% is normal, whereas for higher amounts the RR falls back to only 30%.
TABLE OR 4: Recovery Rate by category of amount
| RR BY AMOUNT - CATEGORY | |||||
| Amount (€) | 2004 | 2005 | 2006 | 2007 | 2008 |
| 0 - 50 000 | 73.54% | 73.94% | 74.26% | 74.94% | 61.44% |
| 50 001 - 500 000 | 55.26% | 56.59% | 53.45% | 59.80% | 47.24% |
| > 500 000 | 30.22% | 24.80% | 21.88% | 30.52% | 15.86% |
| Total | 48.18% | 46.34% | 44.41% | 49.67% | 37.55% |
2.5.3.5.Recovery rates by origin
Concerning the origin countries most frequently mentioned (see paragraph 2.3.2.) the RR indicates more success in the case of imports from the US or Japan than for China or Bangladesh, irrespective of whether the case is registered as fraud or irregularity40. This relationship is not equally strong or constant for other countries. For the RR changing patterns of irregularity influence the outcome strongly, especially since open cases with ongoing judicial procedures and recovery are also included. For the HRR the difference in origin no longer appears to be significant.
2.5.4.Write-down and write-off of established amounts
Member States inform the Commission about the recovery of established entitlements on the basis of two different legal obligations: under Article 6(4) of Regulation 1150/200041 the Member States annually communicate amounts for which recovery is unlikely, whereas on the basis of Article 17(2) of Regulation 1150/2000 they communicate certain cases where the debt is deemed irrecoverable.
2.5.4.1.Written down when recovery is unlikely
Annually Member States communicate amounts in the separate account (B-account) for which recovery has become unlikely. This estimation is used for accounting purposes. The Member States communicate — on average — that recovery of around 60% to 65% of the established amount is unlikely and may need to be written down42.
2.5.4.2.Written off when the debt is deemed irrecoverable
When part of the debt over €50 000, after all recovery measures are exhausted, is still unpaid, the Member State has to communicate their decision to write the amount off to the Commission. The Commission will then assess the recovery efforts and decide whether the Member State involved has acted diligently and taken all the necessary measures or should be considered responsible for the loss and compensate the Community budget43.
The figures in OWNRES showing written-off amounts are not reliable yet. This is mainly due to the awaited catch-up effect for cases before 200444 and the related differences in Member States’ method of registration. Currently OWNRES indicates for cases from 1989 until 2006 that around 20% is written off45. For the EUR-15 the figures vary between 0% and 8%, which can be explained by the fact that the five-year period has not yet elapsed and recovery of outstanding debts is generally still ongoing.
TABLE OR 5: Average write-off rate for closed cases
| AVERAGE WRITE-OFF RATE – CLOSED CASES - 1989-2006 (excluding smuggled/seized goods) | |||||
| Initially established € | Correction € | Established after correction € | Recovery rate % | Written-off amount € | Write-off rate % |
| 3 199 840 405 | -/- 1 578 796 920 | 1 621 043 485 | 79% | 334 090 575 | 21% |
2.5.4.3.Estimation of the recovery of established amounts
Comparing the annual communication by Member States mentioned in paragraph 2.5.4.1. with the figures in paragraphs 2.5.2. and 2.5.4.1., it appears that the annual estimation of amounts unlikely to be recovered in the separate account (60% to 65%) matches relatively closely the data in OWNRES. For the latter the amount unlikely to be recovered may be defined as the sum of the average amount corrected (50%) plus the percentage written off (around 20% of the amount after corrections46). Thus, of a random establishment registered in OWNRES around 40% is recovered, in other words, of every €10 000 of duties initially established approximately €4 000 is actually paid.
2.5.5.Impact on the budget
The amounts that were registered in OWNRES for 2008 have a financial impact of €351 million. Over the last decade the value of amounts has ranged from €200 million up to €401 million (year 2007). The amounts change continuously, as the figure is based on established amounts registered in OWNRES which are updated with corrections that can be significant47.
CHART OR 5: Financial impact TOR1998-2008
2.6.Conclusions
In its capacity as Authorising Officer, the Commission (DG Budget is the delegated Authorising Officer) monitors the establishment and recovery of TOR by Member States in various ways. The monitoring is carried out in partnership with different Commission departments, including the European Anti-Fraud Office (OLAF) where OLAF has issued an associated Mutual Assistance message and/or has an operational interest in the case concerned.
Once a debt is established a Member State can only be discharged from the obligation to make the TOR available to the Commission because of force majeure or for reasons which cannot be attributed to the Member State concerned. As Member States are responsible for making TOR available to the EU Budget, should they wish to be released from their obligation in a particular instance they need to prove that one of these circumstances exists. Where debts are not established although they should have been, Member States are held liable for the TOR foregone (these cases are not registered in OWNRES). As a result Member States have been held financially liable for over €43 million in 2008 and have made available over €15 million. Some actions are still ongoing and new cases are being given appropriate follow-up.
Because of the particular interest the Budgetary Authority has in recovery, reliable information regarding the number of cases of irregularity and fraud and their development must be entered in OWNRES. Member States have a special responsibility to ensure that appropriate statistical information on irregularity and fraud is provided to the Commission. In 2007 Member States were requested to address the shortcomings in the registration in OWNRES of cases where no debt needed to be established (usually smuggled cigarettes), resulting in visible improvements in 2008.
Regarding the reliability of information in OWNRES, making a distinction between irregularity and fraud or analysing fraud separately is risky and the outcome is not very useful. Only court decisions make it certain whether a case is one of irregularity or fraud, whereas within OWNRES this distinction is usually based on a prognostication made by Member States’ administrations. The figures in OWNRES showing marked differences in the proportions of cases denoted as frauds or irregularities between Member States point this out clearly. OWNRES can only be used for global analysis and monitoring.
The goods involved in irregularities and frauds demanding Member States’ attention are very diverse, notably TVs and monitors, clothing and of course tobacco. TVs and monitors keep their relevance in 2008, being once again (one of the most) important goods involved in registered cases of irregularity (or fraud), just like in previous years, whereas vegetables, especially garlic, went down in importance and footwear even disappeared.
The origin of the goods concerned is likewise varied, although some countries remain continuously at the top of the rankings (such as China, the US, Japan). When irregularity or fraud is discovered by a Member State it is mostly in the customs procedure of release for free circulation (false declarations, formal shortcomings or simply smuggling), as in previous years.
The amounts of TOR at stake in irregularity and fraud are, according to OWNRES, up to €351 million in 2008. Of the amounts initially established, approximately 50% is later cancelled and in the case of establishments related to Community Transit up to 90% of the established amount may be cancelled later. And payment is required only for the part which is not cancelled. The initial recovery figures for 2008 are comparable to those of previous years.
Analysis shows that certain particulars of a case may be used as indicators for forecasts of recovery. Cases related to fraud decrease the chance of successful recovery, whereas for instance cases related to MA communications may arrive at better results.
Member States are currently communicating an increased number of write-off cases, because of a change in legislation intended to clear the backlog of old cases dating back to before 2004. Based on the data available so far, it may be estimated that around 10% of the established amounts, equivalent to 20% of the final debts after all corrections, remain unpaid.
In conclusion, it appears that of the amounts initially established around 40% is actually recovered, 10% is written off and 50% is cancelled. After further harmonising the methods of registration and the processing of the backlogs in write-offs, further fine-tuning of this percentage may be expected.
The Commission encourages Member States to continue their activities in the field of recovery and providing statistical information. The Budgetary Authority is entitled to have available the best possible information when monitoring TOR and recovery issues.
PART II - EXPENDITURE
3.AGRICULTURAL EXPENDITURE (Annexes 11-12)
Introduction of a new reporting system
In 2008, a new irregularity reporting system was introduced: Pre-IMS Module 1848. The abbreviation IMS stands for Irregularity Management System. Module 1848 is a web based application which implies that it can be accessed via internet. Member States however, still need to use AFIS (Anti Fraud Information System) to get access to Pre-IMS Module 1848. AFIS is a secured network provided by the Commission. Access via internet is foreseen for summer 2009. Pre-IMS Module 1848 will then be renamed into IMS Module 1848. The reporting module itself will not change.
Germany is already using IMS Module 1848 to submit irregularities. Users in Germany get access to Module 1848 via a secured internet connection. It is a pilot which offers the possibility to test all features of the web based application. The results of the pilot will be used to improve and fine tune IMS Module 1848 before it will be officially released for all users in all Member States. A pilot is an effort demanding activity for all involved parties but especially for the Member State involved. Germany offered great support during 2008.
In June 2008, trainers of all Member States (EU-27) attended a 2-day-training in OLAF to get acquainted and familiar with the new reporting module. The Member States' trainers will train the users in the Member States. A maximum of 4 trainers per Member State attended the training.
Module 1848 was officially launched on 7 November 2008.
The introduction of a new reporting system leads always to some starting-up problems. This counts for the users in the Member States as well as the developers and users on the side of the Commission. The year 2008 should therefore, be seen as a transition year: users needed to get familiar with Module 1848.
All Member States started to use, directly or indirectly48, the new reporting module and tried to report as complete and detailed as possible. All Member States had a critical but above all positive approach towards the new reporting system. Member States were cooperative and provided the developers and managers of the new reporting system with the necessary feedback to improve the reporting system. This willingness to cooperate has to be kept in mind when reading the paragraph on reporting discipline and compliance.
General introduction
The analysis is a descriptive analysis based on the communications forwarded by Member States under Commission Regulation (EC) No. 1848/2006 in the budget year 2008. The budget year 2008 runs from 16 October 2007 – 15 October 2008.
It should be noted that not all irregularities have to be reported. Under Reg. 1848/2006, Member States must only inform the Commission of irregularities involving more than EUR 10,000.
The threshold of EUR 10,000 was introduced by Reg. 1848/2006 that came into force on 1 January 2007. Reg. 1848/2006 replaced Reg. 595/91. Under Reg. 595/91, the threshold was EUR 4,000. The increase of the threshold from EUR 4,000 to EUR 10,000 has to be taken into account when this report is compared with reports of years before 2007. The number of reported irregularities in 2008 is approximately one-third (1/3) of the number of reported irregularities before 2007. The descriptive analysis of this report therefore, cannot be right away compared with the results of previous years.
The expectation is that the number of reported irregularities will decrease even more in the coming years. A rather large amount of subsidies (per beneficiary and per support measure) is below EUR 10,000 therefore, irregularities for these cases will never exceed the threshold of EUR 10,000.
Member States reported 1,142 new irregularities under Reg. 1848/2006 compared with 1,577 irregularities in 2007. During 2008, Member States reclassified 9 of these irregularities as non-irregularities. The total number of new irregularities is therefore 1,13349. The total amount affected in 2008 was about EUR 102 million, as against approximately EUR 155 million in 2007.
Irregularities notified in this sector represent 0.21% of the agricultural budget. Annex 11 provides an overview of the financial impact for the period 2000 - 2008.
Annex 12 gives an overview per Member State, indicating the number of irregularities, the amounts involved and the percentage of agricultural expenditure.
Cyprus and Romania did not report any irregularity in 2008.
3.1.Reporting discipline
Article 3 and article 5 of Reg. 1848/2006 lay down the reporting obligations of Member States. The reporting obligations as stipulated in article 3, paragraph 1, letters a – p of Reg. 1848/2006 are used to determine the reporting discipline and the level of compliance of the Member States. The focus however, will be on those obligations that are crucial for (strategic) analysis and can be summarised with the typical questions that are used in every (fraud) investigation: who, what, when, where, why and how.
The main purpose of forwarding information is to enable the Commission to perform risk analyses (see art. 10 Reg. 1848/200650). For that purpose, OLAF needs to receive reliable, consistent and complete data and as early as possible (timely!).
Table AG1 contains an overview of the compliance rate per reporting obligation. Member States are ranked in order of compliance. The table focuses on reporting obligations that have a high added value for analysis purposes. The letters above the columns refer to the reporting obligations of Art. 3(1) of Reg. 1848/2006. The third column from the right hand side shows the compliance rate per Member State for the budget year 2008. The second column from the right hand side contains the 2007 compliance rates to make it possible to make a comparison between 2008 and 2007.
Cyprus and Romania had no irregularities to report and are therefore considered to be 100% compliant. The rates of Cyprus and Romania have not been taken into account to calculate the EU-27 compliance rate.
Table AG1: compliance per Member State year 2008
A first conclusion is that the overall reporting discipline improved. This is thanks to a positive attitude of all Member States and the introduction of a new reporting system.
15 Member States have a compliance rate above 90%. 7 Member States have a compliance rate between 80% and 90% as 3 Member States has a compliance rate below 80%..
Germany and Finland could improve their compliance rate by reporting personal data. The non-reporting of personal data led to a relatively low compliance rate.
Slovakia is the Member State with the lowest compliance rate: 74%. Slovakia could improve its compliance rate by reporting more timely and by indicating in more detail the support measure affected by the irregularity.
The compliance improved strongly in comparison with 2007. It went up from 78% to 92%. Member States that made a big step forward are Spain (+47%), Germany (+40%), Ireland (+34%), Portugal (+25%) and the Netherlands (+23%). Some Member States had a small setback and need to pay some extra attention to their compliance.
Overall compliance rate is 92% (2007: 78%).
3.1.1.Timely reporting (Art. 3(1) Reg. 1848/2006)
2008 was a transition year: Module 1848 replaced Module 595. The reporting format changed completely therefore cases reported via Module 595 needed to be transferred into "1848-format". This took place in the period April 2008 – October 2008. During that period, Member States could not submit communications via the electronic reporting system. The latter had to be taken into account when the compliance rate for timely reporting was determined. Normally, Member States would have forwarded in 2008 cases discovered in 2008 and late 2007. To determine the level of compliance, all cases discovered (PACA)51 in 2007 and 2008 were considered as being reported on time. Cases discovered before 2007 were considered as reported too late.
Member State reported 133 cases (11.7%) too late. Austria especially is late with the reporting of cases. 12 cases (60%) were already discovered in 2002. Sweden had also difficulties to report timely, only 20% of its cases were reported timely52.
Member States did not indicate a date of discovery in 28 cases (2.5%). The latter concerns mainly cases reported by Hungary (33.3%) and Italy (10%).
The EU-27 compliance rate is 86% (2007: 87%).
3.1.2.Budget year, budget line and product affected (Art. 3(1) (a) Reg. 1848/2006)
Member States are obliged to report the common market organizations (CMO) affected and the sectors and products concerned.
Expenditure is based on the appropriations for a given year. As far as the EAGF53 and EAFRD54 are concerned, the budget year does not coincide with the calendar year. Therefore, Member States should indicate the budget year as well as the appropriation in their communications so that the correct support measure (budget line) affected by the irregularity can be identified.
Each support measure is based on a budget line therefore it should be no problem to indicate the appropriate budget year and budget line. All paying agencies can provide the reporting authorities with the necessary information.
A large number (12) of Member States comply fully (100%) with the obligation to indicate the common market organisations affected, the sectors and products concerned. 6 Member States have a compliance rate higher than 90%. For all other 7 Member States55, attention needs to be paid to indicating the budget year and the measure affected.
Member States reported 61 cases (5.4%) in which the expenditure took place before 2000. It concerns mainly cases from Austria, Greece and Italy with 19, 11 respectively 15 cases56.
Member States with a low compliance rate are Lithuania (25%) and Slovakia (24%).
The EU-27 compliance rate is 93% (2007: 86%).
3.1.3.The moment at which the irregularity was committed (Art. 3(1) (i) Reg. 1848/2006)
Member States are obliged to indicate the period during which or the moment at which the irregularity was committed. Member States indicated in 97% of the cases the date at or period during which the irregularity was committed. A large number (18) of Member States fully complied with this obligation. All other Member States have a compliance rate higher than 90%.
The EU-27 compliance rate is 97% (2007: 86%).
3.1.4.Practices employed and classification (Art. 3 (1) (e) (f) Reg. 1848/2006)
The practices employed (modus operandi) can be indicated by code as well as with text. The codes are in a pick list that contains a collection of different types of irregularity, clustered by topic as for instance "request for aid" and "accounts".
Member States indicated in 99.7% of the cases the type of irregularity by code.
Slovenia and Finland reported code 1999 (“other irregularities”) in a rather high percentage of cases: 100% respectively 63%. The added value of code 1999 ("other irregularities") is rather low therefore it should only be used in case it is impossible to use a code of one of the clusters. Member States should use for these cases also the text field to explain how the irregularity was committed. Unfortunately, that was not the case for a large number of these cases.
As already mentioned, Module 1848 offers the possibility to use written text to describe more precisely the practices employed (modus operandi). The added value of describing the modus operandi in words is rather high. It provides a more in-depth insight. A more precise description of the irregularity helps to improve the quality of the analysis therefore Member States are requested to forward more detailed information on the modus operandi. Copying the findings of the audit report directly into the reporting module would already improve the quality of the reporting. More and more Member States make use of this facility and describe in more detail the practises employed in committing the irregularity.
Art. 3 (1) (f) Reg. 1848/2006 obliges Member States to indicate if the practice amounts to a suspected fraud or not. Member States classified approximately 93% of the reported cases, of which 7% (78 cases) were classified as "suspicion of fraud" or "established fraud"57.
22 Member States classified all cases. Germany and Spain did not classify cases in respectively 36% (40 cases) and 16% (38 cases) of their cases. The Netherlands did not classify 2 cases (7%).
The EU-27 compliance rate is 93% (2007: 74%).
3.1.5.Legal/natural persons identification (Art. 3 (1) (l) Reg. 1848/2006)
Member States are also required to give detailed information on the identity of the natural and legal persons involved.
The added value of personal data for performing risk analyses is high. Irregularities and frauds are committed by persons and not by products, support measures or budget lines, therefore, it is necessary to know the person behind the irregularity.
Finland and Germany indicated in respectively 88% and 41% of their cases that no personal data could be forwarded. Finland indicated that the forwarding of personal data had no added value for the fight against fraud5859 as Germany indicated that due to data-protection-reasons no personal data could be revealed60. Germany provided personal data in 2% of its cases.
The EU-27 compliance rate is 85% (2007: 68%).
3.1.6.Financial impact (Art. 3 (1) (n) Reg. 1848/2006)
Member States reported 1,133 cases. The amount affected by irregularities was indicated in 1,118 cases, which is 99%. Only in a small number of cases, the amounts affected by irregularities could not (yet) be indicated.
Member States do not always indicate the total amount of expenditure on the operation at issue and, where appropriate, the distribution of its co-financing between Community, national, private and other contributions although a clear obligation to report this information can be found in art. 3(1) m Reg. 1848/2006. This obligation will be taken into account in next years report.
The EU-27 compliance rate is 99% (2007: 96%).
3.2.General Trends
This analysis is a descriptive analysis, the aim of which is to provide feedback to the Member States on the communications that were received by the Commission in the budget year 2008 and to give an overall view for the period 1971 - 2008.
One should bear in mind that Member States must only inform the Commission of irregularities involving more than EUR 10,000.
3.2.1.Amounts affected
Table AG2 provides an overview per Member State of the irregularities reported and the amounts affected by these irregularities in the budget year 2008.
Table AG2: Irregularities reported in the budget year 2008
Member States reported initially 1,142 cases. During 2008, 9 cases were reclassified as “non-irregularity” (IRQ0). These non-irregularity-cases are not taken into account for the analysis.
The total number of irregularities reported in the budget year 2008 was 1,133. These 1,133 cases amount to approximately EUR 102 million.
Member States reported 18 cases with an amount affected below the reporting threshold of EUR 10,000. It concerns mainly cases reported by France, United Kingdom, Italy and Lithuania. Cases below the threshold of EUR 10,000 should only be reported if there is a specific reason to report these cases, as for instance fraud or a clear link with other cases. For all these cases counts that no specific reasons were given why these cases were reported.
Member States did not indicate an amount affected by the irregularity in 15 cases.
Member States which reported the highest number of cases in 2008 were Spain, Italy, Portugal and Germany with 245, 211, 120 and 111 cases respectively.
In monetary terms, Italy reported the highest amounts affected by irregularities, more than EUR 54 million, followed by Spain which reported a total amount of approximately EUR 15 million. Italy reported 1 case for the sector "fruits and vegetables" in which the total amount affected was approximately EUR 25 million.
The number of reported cases decreased in 2008 by approximately 28% compared with 2007. The decrease can be partly explained by the coming into force of Reg. 1848/2006 and the introduction of the new threshold of EUR 10,000. In 2007, the decrease was more than 50%61.
In 2008, the amounts affected by reported irregularities decreased with 34% to approximately €102 million. It should however, be taken into account that the amount affected by irregularities is still higher than in the period 2004 – 2006.
Chart AG1 reflects these trends (see also annex 11).
Chart AG1: Irregularities communicated by Member States (1971-2008)
The “amounts in EUR” line shows three peaks, one in 1994, a second one in 2000 and a third one in 2008. These peaks are the result of three Italian cases in 1994, two Italian cases in 2000 and 1 Italian case in 2008. Leaving aside these exceptional cases, since 1994 there has been a clear steady downward trend in the total amounts affected by irregularities. This can be explained by the introduction of the direct aid/payment section, the introduction of the integrated administration and control system (IACS), the move towards direct aid and payments decoupled from production and the introduction in 2007 of a threshold of EUR 10,000 to report irregularities.
Annex 12 gives an overview for each Member State.
3.2.2.Impact on the budget
The total expenditure is approximately EUR 48.6 billion62. Table AG3 provides an overview of the total expenditure in 2008 per budget chapter.
Table AG3: Expenditure and irregularities per budget chapter
The highest expenditure concerned budget chapter 050301: decoupled direct aids. Decoupled direct aids (chapter 050301) were introduced in 2006. The total expenditure was about EUR 31.4 billion, which is 65% of the total expenditure in the agricultural sector. Member States reported for a total amount affected by irregularities of approximately EUR 1.2 million. It concerns 65 cases. France received the highest sum of approximately EUR 5.7 billion, followed by Germany that received approximately EUR 5.3 billion. France reported in 2008 no irregularities concerning “decoupled direct aids”. Germany reported 17 cases with a total amount affected of approximately EUR 0.3 million. The low number of irregularities for decoupled direct aids (chapter 050301) can be partly explained by the fact that the expenditure per beneficiary and per support measure does not exceed the threshold of EUR 10,000 in a large number of cases. For these cases count that irregularity reports will never be submitted.
The highest amount affected by irregularities were reported for the budget chapters concerning "fruit and vegetables” (050208), “rural development (EAGF)" (050405) and "products of the wine-growing sector (050209) with a total amount affected of EUR 39.8 million, EUR 18.4 respectively EUR 12.7 million.
In percentage of the total expenditure per budget chapter, the highest amounts were reported for the budget chapter concerning “olive oil” (050206) with 11.5%.
Table AG4 shows the relationship, in percentages, between the total amount allocated per Member State, the total amount affected by irregularities per Member States and the total number of irregularities per Member State.
Table AG4: Expenditure and irregularities per Member State
Member States are ranked in order of their budget allocation, starting with the Member State receiving the highest amount. France received the highest amount (EUR 9.7 billion) whilst Malta received the lowest amount (EUR 0.5 billion).
Together France, Germany, Spain, Italy, the United Kingdom, Greece and Poland receive more than 75% of the total agricultural budget. These 7 Member States receive approximately EUR 36.6 billion (total expenditure: EUR 48.6 billion).
In 2008, France received approximately EUR 9.7 billion, which is approximately 20% of the total agricultural budget. The reported French cases were responsible for 11,5% of the amounts affected by irregularities, which is rather low in comparison to the expenditure. The same counts for the number of reported irregularities. France was only responsible for 11.4% of the total number of reported cases.
The rather low percentage of cases reported could be the result of good management and control, but could also indicate underreporting.
Some Member States report (far) more irregularities than others. Portugal for instance, reports approximately the same number of cases as France, 120 cases respectively 129 cases. France however, receives 10 times as much as Portugal from the agricultural-budget. France received EUR 9.715 billion as Portugal received EUR 0.974 billion.
Also of interest is the level of reported irregularities as a percentage of agricultural-expenditure per Member State. Italy has the highest percentage with 0.96%, followed by Malta and Portugal with 0.76%, and 0.37% respectively. Rather low are the percentages of United Kingdom, Slovenia, Ireland and Sweden with 0.01%, 0.02%, 0.02% respectively 0.02%. Annex 12 gives an overview of these percentages.
Spain and Portugal reported also in the period 2004-2007 a relatively high number of irregularities as well as a relatively high amount affected by irregularities.
3.2.3.Method of detection
Controls by national authorities63
Under the common agricultural policy, according to the principle of shared management, the Member States are responsible for paying the agricultural subsidies to the final beneficiaries through paying agencies64, accredited by the competent authorities of the Member States. They are responsible in particular for checking the admissibility of claims and compliance with EU rules before payment.
For each aid scheme, the relevant sector regulations lay down detailed rules on checks to be carried out by the paying agencies or by delegated bodies operating under their supervision.
All aid applications are subject to administrative checks before any payment is made. On-the-spot checks are carried out on a sample basis which normally ranges between 5% and 100%, depending on the risk in the sector concerned.
The most important control system is the Integrated Administration and Control System (IACS). It covers all direct payments to farmers. IACS includes a computerised database, an identification system for farmers, for agricultural parcels and for animals in case of payments linked to animals, and a system for identification and registration of payment entitlements and aid applications. For aid schemes which do not fall under the IACS such as storage of products or export refunds, complementary checks must be carried out after the payment to the beneficiary has been made.
At the end of each financial year, the certification body draws up a certificate stating whether it has gained reasonable assurance that the accounts transmitted to the Commission are true, complete and accurate and that the internal control procedures have operated satisfactorily.
Member States must send to the Commission the annual accounts of each paying agency, accompanied by a statement of assurance signed by the paying agency's director. The statement of assurance may be qualified by reservations, which must quantify their financial impact. In that case, it must include a remedial action plan and a precise timetable for its implementation. The statement of assurance must be based on an effective supervision of the management and control system in place throughout the year.
Member States with more than one paying agency must also draw up at the end of the financial year an annual summary report (synthesis) covering the statements of assurance and certificates issued by the certification bodies. Coming on the top of the statements of assurance and certification, this is designed to strengthen the chain of responsibility between the Member States and the Commission.
Controls by the Commission65
The Commission verifies, firstly, the completeness, accuracy and veracity of the paying agencies’ accounts (clearance of accounts) and, secondly, mostly by means of on-the-spot audits, whether the expenditure has been effected by Member States in conformity with the Community rules. Where this is not the case, it excludes the expenditure concerned from Community financing (financial corrections). This latter mechanism, called "conformity clearance", has over the years proven to be a very effective means of protecting the Community's financial interest.
Conformity clearance shields the Community budget from expenditure which should not be charged to it. It is not a mechanism by which irregular payments to final beneficiaries are recovered, something which, according to the principle of shared management, is the sole responsibility of the Member States. Its purpose is to examine the management and control systems implemented by the Member States and to recover from national authorities any expenditure which is not in conformity with Community law. Financial corrections are determined on the basis of the nature and gravity of the infringement and the financial damage caused to the Community. The amount is calculated on the basis of the loss actually caused or on the basis of an extrapolation. Where this is not possible, flat-rates are used which take account of the severity of the deficiencies in order to reflect the financial risk for the Community. In the calendar year 2008 the Commission excluded approximately EUR 1,022 million from Community financing under the EAGF and the EAFRD66 on grounds of its non-compliance with Community rules.
Where individual irregular payments are or can be identified as a result of the conformity clearance procedures, Member States are required to follow them up by recovery actions against the final beneficiaries. However, even where this is not possible because the financial correction relates exclusively to deficiencies in the Member State's management and control system, the correction remains an important means of improving the functioning of that system and thus of preventing or detecting and recovering irregular payments to final beneficiaries. The conformity clearance thereby contributes to the legality and regularity of transactions at the level of the final beneficiaries.
Irregularity reports
Member States are not only required to follow irregular payments up by recovery actions but are also obliged to submit irregularity reports. In these reports, Member States are required to indicate the manner in which the irregularity was discovered. Member States provide detailed information on the reason why an audit, check or scrutiny was performed and how it was performed.
Table AG5 gives an overview why a control was performed as table AG6 gives an overview how the control was performed.
In the European Union, all IACS aid applications are processed and checked administratively. These checks are complemented by on-the-spot controls, selected on the basis of risk analysis. In the budget year 2008, approximately 87.5% of agricultural expenditure under EAGF was processed through IACS.
Member States indicated that in 56 cases (2007: 54 cases) the irregularity was discovered thanks to a check or audit performed on basis of IACS. This is approximately 5% of the total number of reported irregularities (1,133).
In 54 cases, Member States did not indicate the reason why an audit, check or scrutiny was performed, which is also approximately 5% of the total amount of reported irregularities (1,133).
Member States are also under an obligation to perform certain controls on the basis of Council Regulation (EEC) No 485/200867 and Council Regulation (EEC) No 386/90.
Council Regulation (EEC) No 485/2008 relates to the scrutiny of the commercial documents of entities receiving or making payments relating directly or indirectly to the system of financing by the EAGF in order to ascertain whether transactions forming part of the system of financing by the EAGF have actually been carried out and have been executed correctly.
Member States indicated that in 173 cases the irregularity was discovered thanks to an audit performed on basis of Reg. 485/2008. This is approximately 15% of the total number of reported irregularities (1,133).
Council Regulation (EEC) No 386/90 lays down certain procedures for monitoring whether operations conferring entitlement to the payment of refunds on, and all other amounts in respect of, export transactions have been actually carried out and executed correctly. Member States indicated that in 8 cases (2007: 9 cases) the irregularity was discovered thanks to a check performed on basis of Reg. 386/1990. This is less than 1% of the total number of reported irregularities (1,133).
Table AG5: Reasons for performing an audit, control, scrutiny
Administrative enquiry was in 255 cases (23%), the reason for performing a control, audit or scrutiny.
In 227 cases (20%) Member States indicated "other occasions". Unfortunately, Member States only described in 27 cases what the other occasion was.
In 88 cases (2007: 175 cases), the reason to perform a control was based on a judicial enquiry. This is approximately 8% of the total amount of reported irregularities (1,133). Member States classified 4 of these cases (2007: 15 cases) as suspected fraud (IRQ3).
Table AG5 provided an overview of the reason why a control was performed. On the next page provides table AG6 an overview how an audit or check was performed.
Approximately 60% of the irregularities were detected via controls of documents (24%), ex post controls (20%) and controls on the premises of the company (15%).
Member States did not provide any information on the type of control, audit or scrutiny in 157 cases, which is 14% of the total amount of reported irregularities (1,133). In more than 8% of the cases, Member States indicated "other methods (described in field 5.8)". Unfortunately, in a large number of cases there was no description in field 5.8. This means that in more than 20% of the cases no clear description is given of the type and/or method of control.
Table AG6: type/method of control
As in 2007, teledetection did not lead to the discovery of any irregularities.
3.2.4.Types of irregularity
Member States are also obliged to report and to describe the practices employed (modus operandi) of the detected irregularity (see art. 3(1)e Reg. 1848/2006). A clear overview of the (most recently used) modus operandi in committing irregularities will support the Member States and the Commission in their fight against fraud and help to reduce the number of irregularities.
Member States have improved their reporting of the type of irregularity and the modus operandi. The EU-27 compliance rate on type of irregularity is almost 100%, as the compliance rate on the practices adopted (modus operandi) is 86%.
Module 1848 introduced 9 main groups of types of irregularity (see table AG7)68. Each main group contains specific types of irregularities and a code "other" for each group. The latter makes it possible to link the (type of) irregularity to a specific main group. In case it is not possible to link an irregularity to a main group, the code "other other" can be used (code 1900). A text field offers the possibility to describe more in detail the practices adopted (modus operandi).
Table AG7 gives an overview of the types of irregularity most frequently reported by Member States. The types of irregularity are clustered by main group.
Table AG7: Irregularities and frequency of used types of irregularities
Only in 3 cases (<1%), no type of irregularity was indicated. It concerns 2 cases reported by Hungary and 1 case reported by Greece.
In 70 cases, Member States indicated "other irregularities, to be specified". Finland indicated "other irregularities, to be specified" in more than 60% of its cases. In 2007, Finland reported also in more than 60% of its cases "other irregularities". The added value of the indication "other irregularities, to be specified" is rather low. Finland should pay some attention to this reporting obligation.
Group 1100 request for aid
In 18% of the reported irregularities it concerned cases in which the irregularity was already committed during the request phase. As example, can be mentioned an “incorrect or incomplete request for aid”. These cases could normally be discovered before payment.
Member States indicated in all cases (100%) if an irregularity took place before payment or after payment. Discovered before payment means that no payment has been made, therefore, no recovery action has to be undertaken. Discovered after payment means that the beneficiary received the subsidy and that the unduly paid amount needs to be recovered.
The overall rate of irregularities detected before payment is approximately 10%, e.g. 116 cases out of 1,133.
Table AG8 focuses on the group "request for aid". The table shows per type of irregularity if the case was discovered before or after payment. Especially for the group "request for aid" counts that the irregularity can be discovered before payment.
The table shows that only in 23 cases out of 201 cases (=23+178), the irregularity was discovered before payment. This is 11.4%.
The most frequent type of irregularity was “product, species, project and/or activity not eligible for aid”. Member States indicated this type of irregularity in 82 cases. Only in 7 cases, the irregularity was discovered before payment. In 75 cases, recovery actions needed to be started.
Table AG8: Irregularities concerning the request for aid
In 35 cases, Member States described the type of irregularity as “incorrect or incomplete request for aid”. Despite the incorrect or incomplete request for aid, Member States granted in more than 70% of these cases the subsidy.
Denmark, Germany, Spain and Italy indicated in respectively 3, 1, 1 and 7 cases that the applied modus operandi was “false or falsified request for aid”. Germany classified its 2 cases as "established fraud (IRQ5) as Spain classified its case as "suspicion of fraud". All other 9 cases were classified as irregularity (IRQ2).
Group 1400 documentary proof
Table AG7 showed that in 199 cases (18%) the irregularity concerned documentary proof. The largest amount (95 cases) concerns "documents missing and/or not provided". This type of irregularity can normally be considered as an error or mistake which can be repaired. Almost all of these cases are classified as "irregularity" (IRQ2). Only for 2 cases count that Member States classified the irregularity as "suspicion of fraud" (IRQ3). In these 2 cases, more than 1 type of irregularity was indicated.
Member States indicated in 12 cases, with a total amount affected of EUR 1.4 million that it concerned "documents false and/or falsified". 7 of these cases were classified as "suspicion of fraud" (IRQ3) as 4 cases were classified as "irregularity" (IRQ2). 1 case was not classified.
Group 1500 product, species and/or land
In almost 22% of the cases, representing 14% of the total amount affected by irregularities, the irregularity concerned the product, species (animals) or land for which the subsidy was granted. As example, can be mentioned "over-declaration of land" and "declaration of fictitious land". Especially in the sector “rural development”, irregularities were committed by an over-declaration of land. In some cases it even concerned the declaration of fictitious land. Over-declaration can be considered as an error or mistake as declaration of fictitious land needs to be considered as (suspected) fraud.
Member States did not always use the correct code to describe the type of irregularity. The type "inexact quantity" was used in a rather large number of cases to report an overdeclaration of land for which the description "overdeclaration and/or declaration of fictitious product, species and/or land" can be used. Member States probably still have to get used to the new reporting system.
Member States reported in 63 cases "incorrect classification (incl. incorrect tariff heading)". These cases concern mainly the export of pig- and poultry meat. Member States classified 61 of these cases as "irregularity" (IRQ2). 2 cases were not classified.
In 23 cases, Member States classified the cases as "suspicion of fraud" (IRQ3). It concerned in 21 cases "overdeclaration and/or declaration of fictitious land".
Group 1600 (non-) action
In almost 40% of the reported irregularities it concerned cases in which the irregularity was directly linked to an action performed or not performed by the involved persons. For most cases counts, that the beneficiary did not make the deadline to implement, complete or finalise the action.
Table AG9: Type of irregularity – (non) action
In a rather high number of cases (274), Member States indicated "other actions not carried out in accordance with regulations, rules, contract conditions, etc." The total amount affected is EUR 51.5 million. It concerns in 113 cases the rural development sector. The total amount affected is EUR 4.3 million. Member States reported 32 cases for the fruits and vegetables sector and 23 cases for the wine growing sector. The amounts affected for these 2 sectors are respectively EUR 33.2 million and EUR 8 million.
Member States classified 35 as fraud (IRQ3 or IRQ5) and 375 as irregularity (IRQ2). 41 cases were not classified. Germany and Spain were responsible for the reporting of the non-classified cases. The applied modus operandi in 26 of the fraud cases (72%) can be summarized as "operation prohibited during the measure".
3.3.Specific Analysis
Member States inform the Commission of the common market organisations affected, the sectors and products concerned by irregularities. The new reporting Module 1848 offers Member States the possibility to use the official DG AGRI nomenclature to indicate the budget lines affected by the irregularities.
3.3.1.Analysis of support measures
Table AG10 gives an overview of the irregularities reported per main category of support measure. The division into the different types of measures is based on the indications given by Member States of the measures affected, regulations infringed and modus operandi.
Table AG 10: Irregularities per main category of support measure
As in 2007, the sector “fruits and vegetables” (group 050208) scores high. Member States reported 92 cases involving approximately EUR 39.8 million, which is almost 39% of the total amount affected by irregularities. Italy reported 1 case in which the total amount affected was approximately EUR 25 million.
The highest number of irregularities reported related to “rural development”. The budget chapters 050401, 050404 and 050405 have been taken together to determine the impact of irregularities for the sector "rural development". Member States reported a total of 437 cases involving rural development measures (group 0504). These cases alone amount to approximately EUR 20 million, which is almost 20% of the total amount affected by irregularities. The vast majority of these cases concern the programming period 2000-2006.
Member States reported also for the wine sector (group 050209) a rather high number of irregularities and amounts affected by the irregularities: 138 cases and an amount affected by irregularities of approximately EUR 12.7 million, which is more than 12% of the total amount affected by irregularities.
More than 70% of the total amounts affected by irregularities concern the sectors:
- fruits and vegetables 40%
- rural development 20%
- wine 12%
Fruit and vegetables (group 050208)
Table AG11 shows the measures which were hit by irregularities, indicating the number of cases, the total amounts and the average amount per irregularity.
Table AG 11: Fruit and vegetables: measures affected by irregularities
Member States reported a total of 92 cases affecting measures to support the fruit and vegetables sector. These cases alone add up to approximately EUR 39.8 million, which is approximately 39% of the total amount affected by irregularities.
France and Italy reported 3 cases in which the total amount affected by the irregularity was more than EUR 1 million per case. Italy reported 2 cases of which 1 case had a total amount affected of more than EUR 25 million and concerned the support measure "compensation to encourage processing of citrus fruits".
In recent years, Member States have consistently reported a relatively high amount affected by irregularities for the measure "compensation to encourage processing of citrus fruits". In 2008, Member States reported fewer irregularities concerning citrus fruits. The amounts increased but mainly due to 1 Italian case of more than EUR 25 million. The 22 cases were reported by two (2) Member States. Italy reported 2 cases with a total amount affected of EUR 25.3 million as Spain reported the other 20 cases with a total amount affected of EUR 2.3 million. All cases were classified as "irregularity" (IRQ2).
Member States reported 5 cases for the measure “compensation and buying-in lemons". The total amount affected is rather high: EUR 5.7 million. In 2 cases, the total amount affected was higher than EUR 2 million. It concerned 1 case reported by France and 1 case reported by Italy. Greece indicated in 1 case that it concerned "suspicion of fraud".
Cases in which the measure "production aid for processed tomato products" was affected by irregularities were reported by Spain, Hungary and Italy with respectively 1 case, 1 case and 10 cases. All cases were classified as irregularity (IRQ2) although in 4 cases the practices adopted was described as "fictitious processing".
Member States classified in 89 cases (97%) the irregularities as irregularity or as (suspected) fraud.
The reported level of (suspected or established) fraud is 3.5%.
Rural development (group 0504)
Member States reported a total of 437 cases affecting rural development measures. 425 cases concerned EAGF69 as 12 cases concerned EAFRD. These cases alone amount to approximately EUR 20 million, which is approximately 19.6% of the total amount affected by irregularities (see table AG10).
Table AG12 shows the measures that were mostly affected by irregularities, indicating the number of cases, the total amounts and average amount per irregularity.
Table AG 12: Rural development: measures affected by irregularities
The largest number of irregularities related to “agrienvironment". Member States reported 100 cases in which the support measure "agrienvironment" was affected by irregularities. The average amounts affected per case are rather low.
The highest amount affected by irregularities is reported for the support measure “improving the processing and marketing of agricultural products". Member States reported 45 cases with a total amount affected of more than EUR 5 million. Member States classified 96% of the cases. All these cases were classified as "irregularity" (IRQ2). Spain did not classify 2 cases. Most frequently type of irregularity is "product, species, project and/or activity not eligible for aid" and occurred already in the request phase. France described in 1 case the practices adopted as "documents false and/or falsified". This case was also classified as "irregularity" (IRQ2).
As in 2007, the support measure "forestry" has a rather high amount affected by irregularities. Member States reported 79 cases with a total amount affected of approximately EUR 4.5 million. Most frequently occurring type of irregularity is "failure to respect deadlines". In almost 29% of the reported cases, beneficiaries are not able to make the deadlines. It concerns in all cases Spanish beneficiaries. Member States classified more than 91% (72) of the forestry cases as "irregularity" or "suspicion of fraud". Spain did not classify 6 cases as Germany did not classify 1 case. Spain classified 2 cases as "suspicion of fraud". The practices adopted for these 2 cases can be summarized as "false and/or falsified request for aid" and "operation prohibited during the measure".
The support measure "promoting the adaptation and the development of rural areas" has also a rather high total amount affected by irregularities. The total amount affected is approximately EUR 2.9 million. The total number of reported cases is 51. Most frequently applied modus operandi is "over declaration" and/or "fictitious declaration" of land. Member States classified 3 cases as "suspicion of fraud" (IRQ3) as all other cases were classified as "irregularity" (IRQ2).
Member States reported 14 cases for the support measure "investments in agricultural holdings". The total amount affected was rather high: EUR 2 million. The latter was caused by 1 Italian case in which the total amount affected was more than EUR 1.5 million. Member States classified 10 of these cases as "irregularity" (IRQ2), 1 case as "suspicion of fraud" (IRQ3) and 1 case as "established fraud" (IRQ5). 2 cases were not classified. It concerns Spanish cases. The modus operandi in the "suspicion of fraud" case concerns "false and/or falsified documents". The "established fraud" case concerned actions that were not carried out in accordance with the regulations and conditions under which the subsidy was granted.
The reported level of (suspected or established) fraud is 8.5%.
Wine (group 050209)
M ember States reported a total of 138 cases affecting wine measures. These cases amount to approximately EUR 12.7 million. It concerns cases reported by Spain, Portugal, Italy, Greece and France with respectively 58, 44, 20, 11 and 5 cases. Table AG13 shows the measures that were mostly affected by irregularities, indicating the number of cases, the total amounts and average amount per irregularity.
Italy reported 1 case in which the total amount affected by the irregularity was more than EUR 7.2 million. It concerned the support measure "permanent abandonment premiums for areas under vines. The case was classified as "irregularity" (IRQ2). The amounts affected for all other cases vary between EUR 0 and EUR 0.8 million.
The highest number of cases were reported for the support measure "restructuring and conversion of vineyards". Member States reported 115 cases with a total amount affected of more than EUR 3 million. Member States classified 102 cases out of 115 as "irregularity" or "suspicion of fraud". Spain classified 25 cases as "suspicion of fraud" (IRQ3). All other cases were classified as "irregularity" (77) or were not classified (13). The modus operandi of the fraud cases can be described as "operation prohibited during the measure". Unfortunately, Member States did not describe in more detail the applied modus operandi.
Member States reported 12 cases for the support measure "distillation". The total amount affected is approximately EUR 2 million. The applied modus operandi differs per case which makes it difficult to indicate a modus operandi that is occurring more frequently. None of these cases was classified as "suspicion of fraud" (IRQ3) or "established fraud" (IRQ5).
The reported level of (suspected or established) fraud is 18.1%.
3.3.2.Irregularity versus suspected fraud
With the introduction of the electronic reporting system in mid-2001, Member States were asked to classify the irregularities reported. To assist them, an extra field was added to the module offering four possibilities: mistake, irregularity, (suspected) fraud and organised crime. The field was modified in 2004 and 2006 and now offers four possibilities:
- IRQ 0 = no irregularity
- IRQ 2 = irregularity
- IRQ 3 = suspicion of fraud
- IRQ 5 = established fraud
Reg. 1848/2006 introduced the obligation to identify fraud cases. Member States comply rather well with this obligation; the overall compliance rate is 93%. Germany and Spain should pay some extra attention to this obligation. The Netherlands did not classify 2 of its cases (7%). Table AG14 gives an overview of the classification of irregularities by Member States and by OLAF.
Table AG 14: Classification of irregularities by Member States
Classification of irregularities by Member States
Fraud as a percentage of the total number of reported cases involved in irregularities is about 7%. The term fraud includes “suspicion of fraud” (IRQ3) and “established fraud” (IRQ5). The non-irregularities (IRQ0) have not been taken into account for the analysis. As mentioned earlier, Module 1848 was introduced in 2008 which implies that Member States needed to get used to the new reporting system, therefore the figures shown in the table should be treated with caution.
Fraud as a percentage of the total amount of reported cases affected by irregularities is about 4%.
Classification of irregularities by OLAF
In the period 2000 – 2007 the percentage of irregularities classified as “suspected frauds” varied between 10% and 13% of the total number of irregularities reported.
In case OLAF would classify the 2008-irregularities by applying the same method as used for the period 2000 - 2007, the irregularities to be classified as “suspected frauds” would be 9% of the total number of reported irregularities and 10% of the total amount affected by irregularities.
The classification by OLAF is based on the classification by Member States, the types of irregularities (codes) as indicated by Member States, the modus operandi as described by the Member States, sanctions imposed (administrative or penal) and additional comments made by Member States.
The higher fraud rate can be explained by the reclassification of cases from Member States that did not classify any cases as "suspicion of fraud". The latter concerns mainly cases reported by Denmark and the United Kingdom. Some of the Danish, French, Italian and United Kingdom cases would be reclassified from “irregularity” (IRQ2) into “suspicion of fraud” (IRQ3), based on the modus operandi applied in these cases. The practices employed for a large number of these cases can be summarised as “false and/or falsified request for aid”, "false and/or falsified documents", "fictitious use or processing" or "refusal of inspection". OLAF would classify these cases as “suspicion of fraud” (IRQ3). The Maltese case was also reclassified in to "suspicion of fraud" now a penal sanction was imposed.
The classification of the non-classified German and Spanish cases did not lead to an increase of the fraud percentage. Germany did not classify 40 cases. OLAF would classify only 1 of these cases as "suspicion of fraud" (IRQ3). For Spain counts that all non-classified cases would be classified as "irregularity" (IRQ2).
As said, table AG14 and the OLAF-rate should be treated with caution. Member States still need to improve their reporting due to the introduction of the new reporting system.
Estimated level of fraud
On the basis of the irregularities reported in the period 2000-2008 an attempt has been made to estimate the level of “suspected fraud” in the agricultural sector. Chart AG2 reflects the results of this analysis and shows the percentage of irregularities which can be classified as “suspected fraud” and/or “established fraud” cases, both in terms of the number of cases and the amounts affected by the irregularities.
One early conclusion is that, as a percentage of the total number of reported irregularities, “suspected fraud” is approximately 10% in the period 2000–2008. The chart shows that the level of “suspected fraud” cases, as a percentage of the total number of irregularities reported, is relatively stable.
“Suspected fraud” as a percentage of the total amounts affected by the irregularities reported varied between approximately 3% and 45% during the period 2000–2008. A greater difference between the percentage of “suspected fraud” cases based on the amounts and the percentage based on the number of “suspected fraud” cases was to be expected; amounts vary more and differ per irregularity reported. The amounts affected of one single fraud case can already give a complete different and often a distorted picture.
Chart AG 2: Irregularities and “suspected fraud”
It should be reiterated that the obligation to indicate “fraud” was introduced by Reg. 1848/2006, which came into force on 1 January 2007. The figures therefore, should be interpreted cautiously.
3.4.Recovery and sanctions70
3.4.1.Recovery
Article 32 of Council Regulation (EC) No 1290/2005 provides for an automatic clearance mechanism for unsuccessful recoveries of unduly paid amounts. If a Member State fails to recover an unduly paid amount from the beneficiary within four years of the primary administrative or judicial finding (or, in the case of proceedings before national courts, within eight years), 50% of the non-recovered amount is charged to the budget of the Member State concerned within the framework of the annual financial clearance of the EAGF and EAFRD accounts. Even after the application of this mechanism, Member States are obliged to pursue their recovery procedures and to credit 50% of the amounts effectively recovered to the Community budget. If they fail to do so with the necessary diligence, the Commission may decide to charge the entire outstanding amounts to the Member State concerned.
As of financial year 2008, where the undue payments are the result of administrative errors committed by the national authorities, the entire amount involved is deducted from the annual accounts of the paying agencies concerned and, thus, excluded from Community financing.
For EAGF, this mechanism was applied for the second time by the financial clearance decision for the financial year 200771 which cleared all pending non-recovered cases dating from 2003 or 1999 (cases which were four or eight years old respectively) by charging €131.4 million to the Member States. For those paying agencies for which the 2007 accounts were disjoined from the financial clearance decision, a further €0.05 million was charged by a subsequent decision72, and a further €6.2 million still remains to be charged.
Table AG15 provides an overview of the recovery, the irrecoverable declared cases and the outstanding amounts at the end of 2008.
Regarding the financial year 2008, the Member States recovered €108 million , €32.2 million was declared irrecoverable and the outstanding amount still to be recovered from the beneficiaries at the end of that financial year was €1 246 million for EAGF. The financial consequences of non recovery for cases dating from 2004 or 2000 were determined according to the "50-50 rule" mentioned above by charging €31.4 million to the Member States in the financial clearance decision for the financial year 2008 adopted by the Commission on 29 April 200973. A further €0.8 million will be charged by subsequent decisions. Due to this "50-50" clearance mechanism that was applied in the last years by charging some of the non-recovered amounts to the Member States the outstanding amount towards the EU budget was reduced to around €900 million.
Regarding the EAFRD and the Transitional rural development instrument the clearance mechanism set out above did not apply yet. For these funds the amount outstanding at the end of the financial year 2008 was €7.9 million. €17.2 million was recovered and €0.2 million was declared irrecoverable during the financial year 2008.
Table AG15: financial information on recovery (EAGF, EAFRD, TRDI)
3.4.2.Sanctions
The agricultural sector is renowned for its severe penalty system. Community legislation provides a mandatory system for imposing penalties. Reg. 1848/2006 obliges Member States to report details concerning the initiation or abandonment of any procedures for imposing administrative or criminal sanctions as well as the main results of such procedures.
Module 1848 offers the possibility to report more in detail if sanctions are imposed and, if positive, which kind of sanctions are imposed. As already indicated, Module 1848 was introduced in 2008 therefore Member States still need to get used to the new way of reporting. The figures concerning sanctions therefore need to be read with the necessary caution.
In 2008, Member States reported 1,133 cases. In 220 cases, Member States indicated that for:
- 14 cases a decision still needed to be taken (pending);
- 49 cases no sanctions would be imposed;
- 33 cases a sanction would be imposed but the sanction itself still needs to be determined;
- 121 cases an administrative sanction had been imposed;
- 3 cases a penal sanction had been imposed.
In all other 913 cases (81%), no information was received from Member States.
Member States indicated in 188 cases the type of sanctions imposed. Member States indicated that in 130 cases a "community administrative sanction" was imposed. In 11 cases, penal sanctions were imposed. It concerns 2 cases in which imprisonment less than 1 year was imposed and 9 cases in which a financial sanction was imposed.
The total amount of penalties imposed is 1.4% of the total amount affected by irregularities reported. The percentage is rather low despite the fact that Austria and Poland reported a relatively high percentage of financial penalties, 28.4% respectively 38.4%. All other Member States reported a zero or a rather low amount of penalties imposed.
Member States report only in a very limited number of cases the sanctions applied and penalties imposed, therefore, these figures should be read with the necessary caution.
3.5.Conclusions
Introduction
- a new reporting system was introduced in 2008: Module 1848;
- successful IMS-pilot Germany thanks to the efforts of all involved parties;
Reporting discipline:
- reporting discipline of Member States improved in 2008 (78% ⇨ 92%);
- all Member States used the electronic 1848-format74 to submit irregularities;
- timely reporting should be improved by Austria, Sweden and Slovakia;
- reporting of personal data is an attention point for Germany and Finland;
- budget lines (DG AGRI nomenclature) need to be indicated in full detail, especially by Lithuania and Slovakia;
- practices employed should be described in more detail by Slovakia;
- date on which the irregularity was committed should be better indicated, especially by Hungary;
- the compliance rate per key-element for performing risk analysis:
- timely reporting: 86% (2007: 87%)
- personal data: 85% (2007: 68%)
- measure affected: 93% (2007: 86%)
- date irregularity committed: 97% (2007: 86%)
- practices employed: 93% (2007: 47%)
- financial impact: 99% (2007: 96%)
- the EU-27 compliance rate is 92% (2007: 78%)
General trends:
- total expenditure in 2008 was about € 48.6 billion;
- Member States reported 1,133 new irregularities in 2008;
- total amount affected by irregularities was about EUR 102 million;
- introduction of a threshold of € 10,000 has led to a decrease of more than 65% of the total number of cases reported in 2008 compared to 2006;
- the number of cases and the amounts affected are not equally spread over all Member States:
- Belgium, Spain, Italy and Portugal reported a relatively high amount of irregularities and/or a relatively high total amount affected by irregularities;
- Germany, France, Ireland and United Kingdom reported a relatively low amount of irregularities and/or a relatively low total amount affected by irregularities;
- 18% of the irregularities concern the request for aid;
- Most frequently occurring type of irregularity (40%) concerned the action or non-action of a beneficiary;
- 10% of the irregularities were detected before payment;
Specific analysis:
- the three main categories most affected by irregularities are:
- fruit and vegetables: 92 cases involving EUR 40 million
- rural development: 437 cases involving EUR 20 million
- wine sector: 138 cases involving EUR 12 million;
- the budget lines most affected by irregularities are:
- fruit and vegetables: compensation to encourage processing of citrus fruits
- rural development:
- improving the processing and marketing of agricultural products
- investments in agricultural holdings
- wine: restructuring and conversion of vine yards
Irregularity vs suspected fraud:
- “suspected fraud” and “established fraud” cases, as a percentage of the total number of irregularities reported, vary between 7% (classification by MS) and 9% (classification by OLAF).
Recovery75:
- € 125 million was recovered during 2008 by the Member States from beneficiaries;
- € 32 million was declared "irrecoverable" during 2008;
- € 1,254 million is outstanding at the end of 2008 at the level of the beneficiaries;
Penalties:
- 188 cases (17%) in which sanctions were imposed;
- 11 penal sanctions were imposed, including 2 cases of imprisonment;
- Austria and Poland reported more financial penalties than other Member States.
4.European Fishery Fund
Commission Regulation (EC) No 498/2007 of 26 March 200776 lays down detailed rules for the implementation of Council Regulation (EC) No 1198/2006 which establishes the European Fisheries Fund (EFF) and defines the framework for Community support for the sustainable development of the fisheries sector, fisheries areas and inland fishing.
Chapter VIII of Regulation (EC) 498/2007 contains the relevant provisions for the reporting of irregularities to the Commission, establishing a set of rules that are very similar to those foreseen for the Structural Funds.
During 2008, no irregularities have been reported by the Member States concerning this Fund.
5.Structural measures (Annexes 13-17)
In 2007, Member States reported 3,858 irregularities under Regulation (EC) No 1681/94 which covers the four Structural Funds77 and 140 under Regulation (EC) No 1831/94 (on the Cohesion Fund). 9 irregularities were reported under Regulation No 1828/2006, which covers the programming period 2007-201378.
The total amount affected by irregularities in 2008 was about EUR 585.2 million, EUR 528.9 million of which was from the Structural Funds and EUR 56.3 million from the Cohesion Fund. Irregularities reported in this sector were equivalent to 1.25% of the resource allocations for 2008.
Since the information system of irregularities was established, Member States have reported 28,627 irregularities, of which 27,619 related to the Structural Funds and 1,008 to the Cohesion Fund.
5.1.Reporting Discipline
In 2008, the Commission received 8,401 communications79 under Regulations (EC) Nos 1681/9480, 1831/9481, and 1828/2006 of which 4,331 were updates of cases that had been previously reported. For the first time, irregularities concerning the new programming period 2007-2013 were received from Bulgaria, the Czech Republic and Slovenia.
During 2008 the use of the electronic facility put at disposal of the Member States has seen a further increase; as a result, almost 78% of the communications has been reported through electronic means as showed in Chart 1.
Chart SF 1: Reporting of irregularities – used formats
The increased use of the electronic reporting system led to an improvement in data quality and in timeliness of reporting. It also reduces different understanding and interpretations of the reporting system and, therefore, improves the consistency of the information submitted to the Commission.
Though not all Member States have been using the electronic facility provided through the AFIS-ECR platform, all of them have been trained for the new reporting system IMS and showed their willingness to use it as soon as it will become operational in the course of 2009.
In relation to 2007 the situation has been improving under almost all respects. Table SF1 shows a summary of the major elements that have been taken into account for evaluating the compliance of Member States with the reporting obligations. Member States are ranked in decreasing order of overall compliance. The elements that have been examined for producing this table are the following:
1. timely reporting: it calculates the percentage of the communications that has been transmitted within the foreseen deadlines;
2. time gap: indicates the percentage of irregularities that has been communicated within 24 months following detection;
3. programme number: indicates the percentage of irregularities for which the indication of the numbers identifying the programme interested by the irregularity is provided;
4. practises adopted: shows the percentage of irregularities for which the description of the practises adopted has been indicated;
5. classification: indicates the percentage of the irregularities for which Member States indicated whether they constituted an "administrative irregularity", a "suspected fraud" or an "established fraud";
6. date established: shows the percentage of the irregularities for which the date in which the irregularity has been established has been provided;
7. personal data: indicates the percentage of the reported irregularities for which the data identifying the legal entities or natural persons have been provided;
8. compliance: is calculated as the average of all the values indicated in columns from a) to g).
Table SF1: compliance per Member State year 2008
The average compliance level has increased from 84% of 2007 to 92% of 2008, underlying the commitment undertaken by the Commission and the Member States for improving the situation. It also confirms that the increase of use of the electronic reporting facilities had a positive effect on the quality of the information submitted.
Only two elements of the communications of irregularity still present a level of compliance which deserves some further attention:
9. classification: though the compliance with this obligation is increasing in relation to 2007 (from 67% to 73%), this remains the weakest element in the implementation of the regulation82;
10. time gap: still 18% of the irregularities are reported with a time gap greater than 2 years from the moment of detection. 16% of the irregularities are reported between 12 and 24 months after detection.
Apart from these two elements, the situation can be considered satisfactory, with a compliance rate of 92%.
5.2.General Trends
5.2.1.Overall trends
In 2008 the number of irregularities reported increased by around 6.7% as compared to the year before. However, the related irregular amounts decreased of about 27.2%, from EUR 804.1 million (including the Cohesion Fund) to EUR 585.2 million. As far as the number of irregularities communicated is concerned, it has reached its peak in 2002 with more than 4,500 irregularities notified. This situation was due to the closure of the programming period 1994-1999. As shown in Chart SF2, since then the number of reported irregularities has been increasing with the only exception of 2006.
Chart SF 2: 1998-2007 trend concerning number of reported irregularities for the Structural Funds, the Cohesion Fund and in total
In 2008, the number of irregularities kept on rising, up to 4,007 (including the Cohesion Fund). The number of irregularities reported from the new Member States (EU10) increased by 52.4%, while those reported by the old Member States decreased by 1%; Bulgaria reported its first irregularities in 2008.
Among the EU10, with the sole exceptions of Malta (-67%) and Estonia (-12%), the increases varied between +25% (Poland) and +386% (Lithuania).
Among the EU15, the most significant decreases were those of Luxembourg (no reported irregularities) and Ireland (-85%), while the most significant increases were those of Sweden (+97%) and the Netherlands (+75%).
5.2.1.1.Trends related to the Funds
Irregularities affecting projects financed through the ERDF remain the most frequently reported, as showed in Chart SF 3.
Chart SF 3: Distribution of irregularities among the Funds - 2008
The trend per Fund showed in Chart SF 4 confirms the overall increase of irregularities related to the ERDF in the last years with the exception of the years 2003 and 2006.
Chart SF 4: Overall trend by Fund – 1998-2008
Since 2003, the other three Structural Funds remain quite stable. In comparison to 2007, irregularities referred to the Cohesion Fund and the ERDF increased by 63% and 18% respectively. Those related to the ESF, EAGGF – Guidance and FIFG decreased by 4%, 17%and 17% respectively.
5.2.1.2.Trends related to Member States
Like in previous years, the irregularities are not distributed equally among Member States.
Taking into consideration how the irregularities are distributed among Member States, like in previous years the biggest countries and those with the highest overall funding from the Cohesion policy report the most irregularities. In 2008, the highest number of irregularities was reported by Italy (802, +24%), Spain (552, -14%), the United Kingdom (483, -3%), Portugal (425, -22%), and Poland (337, +25%).
In the analysis of the particular funds, the irregularities are split differently among the Member States than in the total number of cases.
For example, in the European Social Fund (ESF) irregularities, the Netherlands is the country having reported the highest number of irregularities (208), followed by Portugal (162), Germany (157), Sweden and Spain (121).
In the European Regional Development Fund (ERDF) the countries reporting the most irregularities are Italy (589), the United Kingdom (348), Spain (307) and Poland (197).
In the European Agriculture Guarantee and Guidance Fund – Guidance section (EAGGF-Guidance), Italy reported the highest number of irregularities (102), followed by Poland (73), Portugal (61), and Spain (54).
In the Financial Instrument for Fishery Guidance (FIFG), irregularities from Greece and Italy (12), and the United Kingdom (9) account for more than 67% of the total number of reported irregularities affecting this Fund.
Finally, concerning the Cohesion Fund, Spain reported almost 47% of the received irregularities (64) for this fund, followed by Portugal (22) and Hungary (13). Greece, which in the previous years had reported the greatest share of the irregularities affecting this Fund, comes in fourth place (12) Concerning this Fund a certain concern remains as to the reliability of the reported information, as the number of reported irregularities appears too low in relation to the other funds and the allocated resources.
5.2.2.Amounts involved
The irregular amounts decreased significantly (-27.2%). It is difficult to explain this variation also in relation to the increased number of reported irregularities. It can happen, however, that in certain years some irregularities involving great amounts are detected and that can greatly influence the overall situation.
Chart SF5 shows the trend of the irregular financial amounts since 1998.
Chart SF 5: 1998-2008 trend concerning irregular financial amounts for the Structural Funds, the Cohesion Fund and in total
The irregular financial amounts related to the reported irregularities increased by 165.3% for the EU10 and decreased by 35.1% for the EU15.
The possible explanation for the difference between the EU10 and EU15 could be that the implementation of the programmes financed under the Cohesion policy only started in 2004 for the new Member States and, consequently, they needed some time for a full implementation of the system and an improved compliance with the reporting obligations.
It seems also premature to indicate whether the decrease in terms of irregular financial amounts represents an inversion of the general tendency that for the last ten years (1998-2007) has seen an upward trend.
It should also be stressed that, as of 2007, the new programming period 2007-2013 comes into relevance. The first irregularities related to the new programmes have been reported in 2008.
Only a part of these irregularities have real financial consequences and constitute a specific potential loss to the European budget. In fact, some irregularities are detected before any payment is made and the question of recovery does not arise; others are corrected at the closure of the relevant programming period (for more details see infra paragraph 5.3.3).
Moreover, the majority of irregularities having a real financial impact are not fraudulent and, once an irregular situation has been identified, corrective measures are adopted and recovery procedures started. These may take some time. In cases of suspected fraud, however, penal or judicial procedures are activated and longer delays can be expected.
As far as amounts per country are concerned, Spain has reported the highest irregular amounts (EUR 165.5 million; -22% in relation to 2007), followed by the United Kingdom (EUR 123.3 million; -24%), Italy (EUR 75 million; -52%) and Poland (EUR 35.6 million; +91%). This "ranking" follows the same pattern as last year, with the exception of Poland.
Table SF2 summarises the number of irregularities and related amounts reported by each Member State.
The huge differences between Member States in terms of number of irregularities and amounts affected do not necessarily mean that one country is more fraudulent than another. The reason for the high number of irregularities in the given country could be as well a higher number of controls carried out in the analysed year, while the reason for a lower number in another could be also related to a restrictive interpretation of the reporting obligation.
Table SF2: Number of cases and amounts affected by irregularities per Member State83
5.2.2.1.The four Structural Funds
As not all Member States benefit of the resources coming from the Cohesion Fund, Table SF3 presents the same information as in Table SF2, but limiting it to the four Structural Funds.
Table SF3: Number of cases and amounts affected by irregularities per Member State limited to the four Structural Funds
The overall picture varies only partly in relation to Table SF2, with Spain still reporting the highest irregular financial amounts (140 MEUR, -21% in relation to the year 2007), followed by the United Kingdom (123 MEUR, -24%%), Italy (75 MEUR, -52%) and Poland (35 MEUR, +96%).
Concerning the ERDF, Spain, the United Kingdom and Italy are the countries which reported the highest irregular financial amounts, followed by Portugal.
In the ESF, the United Kingdom and the Netherlands are followed by Italy and Portugal like in 2007. The first of the EU10 is Poland.
In the EAGGF section Guidance, the highest irregular financial amounts have been reported by Italy, Portugal and Spain. Poland is the Member State of the EU10 group with the highest reported irregular amounts.
In the FIFG, Italy is the country having reported the highest amounts, followed by Greece.
The details of the irregular financial amounts reported by each Member State by Fund are showed in Annex 15, Part 2.
5.2.2.2.The Cohesion Fund
For the Cohesion Fund, Spain is the Member State having reported the highest irregular amounts (almost 25 MEUR), though with a significant decrease in relation to 2007 (-24%); it is followed by Ireland (9.5 MEUR; +43%) and Lithuania (8.2 MEUR; +2,416%). Table SF4 shows the details for this Fund by Member State.
Table SF4: Number of cases and amounts affected by irregularities per Member State – Cohesion Fund
Values related to the Cohesion Fund still appear to be unreliable to allow a convincing analysis of the related trends.
Further information concerning the irregularities related to the Cohesion Fund by Member State is showed in Annexes 14 and 17.
5.2.3.Impact on budget
Since 2002, the impact of reported irregularities on the Structural measures budget has been oscillating between 1.9% (in 2002) and 1.25% (in 2008), as showed in chart SF6.
Chart SF 6: Impact of irregularities on SF budget84
In particular, in the period between 2003 and 2007, the impact on the budget of the reported irregularities has remained rather stable.
On the one hand, this supports the conclusion that a certain consistency and continuity have been achieved in the reporting of irregularities by Member States.
However, on the other hand, there is a great difficulty in analysing correctly this information. The reported irregularities refer to programmes and projects that are of a multi-annual nature and, furthermore, a part of the reported irregularities refers to a different programming period (for more details see paragraph 5.3 below). Furthermore, the budget for the year 2008, on which the impact of irregularities reported by the Member States has been calculated, is indicating the resources allocated to the second year of the programming period 2007-2013, while only a very limited number of the reported irregularities are referred to it.
This implies that a correct estimation of the impact of irregularities and suspected frauds on the part of the European budget dedicated to the Cohesion policy is possible only by analysing irregularities by programming period. Paragraph 5.3 will deal with these specific issues.
5.2.4.Detection methods
Table SF5 shows the most frequent detection methods and the related detected amounts.
Table SF5: detection methods
The amounts indicated are indicative insofar as several detection methods may be reported in connection with a single irregularity and therefore be double counted in the table.
The main two types of controls emerging from the table are documentary checks and on-the-spot controls.
Particularly significant is the high number of detections that followed “Additional control on request of the Commission”. This “source” of detection is observed exclusively in Italy (341 cases) and the Czech Republic.
It should also be emphasised the excessive use of generic codes such as "Other facts" and “Other controls”. The lack of further information on these methods is particularly regrettable, as these "categories" presents high average detected amounts.
Contrary to previous years, documentary checks present a higher average detected amount than on-the-spot controls.
The highest average detected amounts, however, are not displayed in Table SF5, as they refer to “methods of detection” that have been reported less frequently, namely: “control by police” (EUR 524,565 as average detection on 15 occurrences); “initial enquiry” (EUR 468,628 in average on 37 occurrences); and “Community control” (with an average of EUR 335,239 on 20 occurrences).
5.2.5.Types of irregularity
Differences remain among Member States as to the types of irregularities reported and, for a great part, these are consistent with last year. The majority of cases involve irregularities of an “administrative” nature that are normally detected in the course of the routine documentary checks which are conducted before any payment of European money is made. To demonstrate this, among the most frequent types of irregularity reported by Member States are the “not eligible expenditure” and “missing or incomplete supporting documents”.
Falsifications of documents were detected in Italy, Poland, Germany, the United Kingdom, Portugal, Latvia, Lithuania, Greece, Estonia, France and Cyprus.
Table SF6 shows the most frequent types of irregularities together with the amounts involved and the indicative average amount85:
Table SF6: Most frequent types of irregularities reported by Member States
It is important to underline that the most frequent types of irregularities are almost the same as in the last four years confirming a certain consistency in patterns and trends relating to structural measures and consistency in reporting by the Member States.
The consistent pattern across all the funds is that the “not eligible expenditure” is the most reported typology. In the second place, “infringement of rules concerned with public procurement” is the second most reported typology for the ERDF and the Cohesion Fund.
“Missing or incomplete supporting documents” is the second most reported typology for the ESF and FIFG.
It should be underlined that the generic code “other irregularities” is still the third most used typology.
5.2.6.Suspected frauds
First estimations of which proportion of the reported irregularities could be defined as “suspected frauds” were presented in the Annual Reports since 2004. These attempts were mainly based on specific analyses of the information reported by the Member States concerning the modus operandi, the type of irregularity, the administrative state of an irregularity and the additional information given in text fields.
After the modifications introduced by Regulations Nos 2035/2005 and 2168/2005 to the basic Regulations Nos 1681/94 and 1831/94, as of January 1st 2006, Member States have to “qualify” the reported irregularity, indicating whether the reported irregularity is a “suspected fraud” or not. The concept of “suspected fraud” is necessary, because a given situation can be defined as fraudulent only after a sentence is issued by a competent court.
As already indicated in Table SF1, Member States classified 78% of the reported irregularities (that is to say that they indicated whether the reported situation was evaluated as an administrative irregularity or a suspected fraud). It is an encouraging progress in relation to the previous year, when 67% of the reported cases provided for this indication, but it also shows that there is still room for improvement, in particular from certain Member States (4 Member States have still not provided any qualification at all; another could provide the classification only for 10% of the reported irregularities. For more details, see supra par. 5.1).
About 8.3% of the 2,916 irregularities for which qualification has been provided, were qualified as “suspected frauds”. This result is lower than last years’ estimations.
Furthermore, by applying the same analytical techniques of the previous years86 to the data set classified by the Member States, the results obtained are rather consistent with those obtained on the portion of information received from the Member States as indicated in table SF7. In fact, the results differ in only 1.47% of the cases. However, all these differences are related to cases that according to the analysis by the Commission should have been classified as cases of suspected frauds.
Table SF7: Comparison between Commission and Member State classification of irregularities
It should be also highlighted that from a very detailed analysis of the cases where differences exist, elements provided by the Member States induce to consider correct the re-classification operated by the Commission87.
Despite the consistent and positive results showed above in terms of comparability and compatibility of the two approaches (the Member States’ and the Commission’s), still some caution is recommended in assessing the meaning of these figures. A 100% qualification from the Member States would remove this caution, but these results are, indeed, encouraging.
Chart SF788 presents the trend of the percentage of suspected frauds on the total reported irregularities in the last eight years calculated according to Commission’s estimations and Member States' classifications.
Table SF 8 shows the values represented on the chart.
Chart SF 7: Level of “suspected frauds” on total reported irregularities from 2000 to 2008
Table SF 8: Level of "suspected frauds" on total reported irregularities from 2000 to 2008
Chart SF7 also witnesses the caution undertaken by the Commission to provide a classification of the irregularities compatible with that provided by the Member States.
The percentage of suspicions of fraud on the total reported irregularities, according to Commission's estimations was about 7.4%. As percentage of the irregular amounts, this share raises to 9.8%. According to Member States' classifications, these percentages are, respectively 8.3% and 15%.
The different results between the two analyses depend almost exclusively on the fact that the analysis by the Commission makes use of the entire data set of irregularities, while that based on the classification by the Member States uses a smaller data set (due to not complete compliance with the reporting obligations as explained under paragraph 5.1).
The analysis of the Commission highlights a decreasing tendency of the reported suspicion of frauds and related amounts (expressed as percentage of the total reported irregularities and irregular amounts) from 2006 to 2008. It is premature to conclude about a diminution of fraud in the sector, as results may be easily influenced by the detection of cases of suspicion of fraud with bigger or smaller amounts involved, but it is worth monitoring it in the coming years.
On the basis of this estimation, in 2008, reported “suspected frauds’ affect about 0.11% of the annual budget for the Cohesion Policy.
However, this does not mean that this amount turns out into a loss for the European budget. In fact, these amounts relate to suspected fraudulent behaviours that have been detected by national authorities and for which recovery procedures are ongoing. Moreover, when these situations were detected in early stages of the process, the “potential” loss is even decreased, because no payments or only interim payments have been granted.
By analysing only the cases estimated to be considered as “suspected frauds”, the amounts still to be recovered related to them impacts on the EU budget for 0.07%.
5.3.Specific analysis – Irregularities related to the programming period 2000-2006
The specific analysis focuses on the programming period 2000-2006; the data set is composed of all the irregularities related to it reported until the fourth quarter 2008. In order to improve the comparability among the different Member States, the irregularities referred to the Cohesion Fund are not included.
Chart SF8 shows the trend of reported irregularities (both in terms of numbers and financial amounts involved) referred to the programming period 2000-2006 as from the year 2000.
Chart SF8: 1998-2008 trend concerning number of reported irregularities and irregular amounts – Programming Period 2000-2006
Irregularities related to this programming period have been steadily increasing year after year. This is due to the fact that controls on the projects also progressed with the advancing of the financed operations. It is worth remembering that the projects financed through the Structural Funds are implemented during several years.
Table SF 9 shows the data displayed on Chart SF 8 and also includes the amounts of annual payments from the Commission to the Member States indicating the related irregularity rate.
The irregularity rate is calculated by dividing the irregular financial amounts by the payments.
Table SF 9: number of reported irregularities, irregular amounts, payments and irregularity rate – Programming Period 2000-2006
The irregularity rate is continuously increasing and it is expected to increase even more in the coming years when the payments for the programming period 2000-2006 will be over but irregularities will keep on been reported.
Chart SF9 puts in comparison the trend related to the programming period 2000-2006 with that of the previous round in terms of numbers of reported irregularities, in order to show that even after the year of closure of the period 1994-1999 (Year 9), irregularities keep on being communicated.
Chart SF 9: 1998-2006 trend concerning number of reported irregularities and irregular amounts – Programming Period 2000-2006
The chart clearly shows that the number of irregularities related to the current programming period reported in the first 8 years from its beginning are many more than those related to the previous.
This is due to a number of reasons. The increased resources allocated to the structural measures, the higher number of Member States that benefit from them, a better understanding of the reporting obligations from national authorities, but also, probably, a growing attention to this sector.
5.3.1.Irregularities affecting the different funds
Table SF10 summarises, in relation to each of the Structural Funds, the number of irregularities, the related irregular financial amounts, the payments and the irregularity rate calculated as the ratio between irregular financial amounts and payments. Please note that the irregularity rate results slightly lower in Table SF9 than in Table SF8 as also payments from 2009 are included.
Table SF10: Irregularities, payments and irregular rate by Fund
Charts SF10 and SF11 show the distribution of the 15,495 irregularities and the related irregular financial amounts among the different Funds.
Chart SF10 (left): Distribution of irregularities by Fund
Chart SF 11 (right): Distribution of irregular financial amounts by Fund
While in terms of number of reported irregularities the ERDF seems slightly under-represented in comparison with its share of the payments (58%), the irregularities financial amounts related to Regional Development Fund have a higher relative weight that is greatly exceeding its share of the payments (72% of the total irregular amounts against 58% of the total payments). This difference may be justified by the fact that the ERDF finances projects of a higher value and therefore irregularities tend also to have a greater amount.
It is interesting to note that in Table SF 9, the other three funds have an ‘Irregularity rate’ that is very similar (between 0.64% and 0. 78%), while that of the ERDF is almost double than that of the ESF.
5.3.2.Irregularities by Objective
The Cohesion policy aims at supporting the economy of regions lagging behind or in a difficult contingent economic situation. The European support; which is always accompanied by a national support, varies according to the fact that a region falls within the area of a given objective89.
Table SF11 summarises, in relation to each of the Objective, the number of irregularities, the related irregular financial amounts, the payments and the irregularity rate calculated as the ratio between irregular financial amounts and payments. Please note that the irregularity rate results slightly lower in Table SF10 than in Table SF8 as also payments from 2009 are included.
Table SF11: Irregularities, payments and irregular rate by Objective
Charts SF12 and SF13 show how the irregularities related to the programming period 2000-2006 were distributed among the different objectives.
Chart SF 12 (left): distribution of irregularities (number) by objective
Chart SF 13 (right): distribution of financial irregular amounts by objective
The distribution of the irregularities is to a certain extent in line with the allocation of the financial resources among the different objectives, with an over representation of irregularities related to objective 2 programmes and an under representation of irregularities affecting objective 3 programmes.
Furthermore, the irregularity rate for the Objective 2 programmes is the highest (1.74% of the payments). The irregularity rate for the Objective 1 programmes is almost equal to the overall irregularity rate (1.10% against 1.12%), while that for Objective 3 programmes, Fisheries out of Objective 1 regions, the Equal community initiative, and Leader+ are lower or significantly lower (respectively 0.88%, 0.47%, 0.38% and 0.20%).
These elements may imply some under-reporting in relation to programmes / initiatives presenting a very low irregularity rate. The interpretation of the irregularity rate of Objective 2 programmes is more difficult as it may indicate a greater effectiveness of the control systems of these programmes in detecting the irregularities or denote some problematic aspects in the implementation of these programmes. Information currently available does not allow solving this dilemma.
5.3.3.Suspected frauds
On the basis of the method used for classifying the reported irregularities as illustrated in paragraph 4.2.6, it is possible to give an attempt of identifying the impact on the programming period 200-2006 of the suspicion of fraud calculated on the basis of the irregularities reported until the 4th quarter 2008.
Table SF12 shows an overview of the amounts related to suspicion of frauds indicated by Objective or Community Initiative (on the rows) and Fund (Columns). These financial irregular amounts have been then divided by the corresponding overall payments to obtain a “fraud rate” per objective and fund. The overall result is a fraud rate of 0.19% on the total payments.
Table SF12: Fraud rate by Objective and Fund
Among the Objectives, programmes referred to the Objective 1 regions present a higher rate (0.22%) than the others. Objective 2 programmes present a very low rate (0.06%). Only the Leader+ initiative shows a lower rate (0.02%).
Among the Funds, the ERDF presents a rate of 0.21%, with ESF and EAGGF – Guidance on the same level (0.15%) and the FIFG just lower (0.10%).
5.3.4.Irregularities detected before payment
An interesting aspect to examine in the framework of the protection of the Communities’ financial interests is what proportion of irregularities is detected before any payment is effectively made to the beneficiaries.
This aspect can provide some concrete elements also concerning Member States’ capabilities to prevent irregularities.
Table SF12 shows the total number of irregularities reported by each Member State on the whole programming period 2000-2006 (column A); the number of irregularities detected before any payment is made (column B); what percentage B represents on A (column C); the financial amounts reported as irregular (column D) and those related to the irregularities detected before payment (column E); and finally what percentage of the total irregular financial amounts reported have been identified before payment (column F).
Table SF 13: irregularities detected before payments per Member States - 2006
Looking at column F, very high rates of detection before payment emerge especially in some of the EU10 (namely Hungary, the Czech Republic, Latvia, Lithuania, and Poland) and, among the EU15, in Sweden, the Netherlands and Italy.
Some caution is needed on these data, because some Member States may have not reported the irregularities they detected before payment.
5.4.Recovery
In 2008, Member States communicated, pursuant to Regulation No. 1681/94, 3,858 irregularities were reported for a total financial amount of EUR 528,019,117.
The situation as regards recovery in 2008 (see Annex 16) is as follows:
- Member States recovered EUR 109,902,839;
- the sum to be recovered was EUR 329,174,994;
- in the same period, the amount declared irrecoverable pursuant to Article 5, par. 2 of Regulation No. 1681/94, and which is awaiting a formal decision is EUR 16,805,607.
These figures indicate that 62% of the reported irregular amounts are to be recovered. In 2007 these amounts represented 67% of the total reported irregular amounts. Member States are showing an increased capability of reacting to irregularities by recovering or securing the Community’s financial interests in a more effective manner. It should be, however, be kept in mind that recovery procedures, especially in cases of suspicions of fraud, may take a few years before they are completed.
Pursuant to Regulation No. 1828/2006, 9 irregularities were reported for a total financial amount of EUR 901,294; of which EUR 12,864 remain to be recovered.
Pursuant to Regulation No.1831/94, Member States reported 140 irregularities for a total amount of EUR 56,328,911 (see annex 17), of which EUR 19,768,042 remain to be recovered. The amounts to be recovered are declining in relation to previous years.
5.5.Conclusions
Introduction
- Member States reported 4,007 irregularities in 2008;
- The total financial amount affected in 2008 was EUR 585.2 million.
Reporting discipline
- The number of irregularities reported through the Electronic modules AFIS/ECR has been increasing and represent now almost 80% of the total; the overall compliance of Member States has increased accordingly;
- Member States need to pay more attention to submit the irregularities within deadlines established by regulations, but the situation is improving in relation to the past;
- The time gap between detection and reporting is satisfactory for 90% of the irregularities;
- The classification of the irregularity (indicating whether or not it is a case of “suspected’ fraud) is an element of the reporting that needs to be strengthened. In 2007, the classification was provided in 73% of the irregularities, increasing in comparison with 2007;
- Despite the clarifications and simplifications introduced with Regulations Nos 2035/2005 and 2168/2005, there is still need for further harmonisation of reporting between Member States.
General trends
- The number of irregularities reported to the Commission increased by 6.7% in relation to 2007;
- The irregular financial amounts related to those irregularities decreased by 27.2%;
- The impact of irregularities on the total Structural actions budget decreased in relation to the previous year (down to 1.25%);
- Italy, Spain, the United Kingdom, Portugal and Poland are the countries that reported the highest number of irregularities in 2008;
- Spain, the United Kingdom, Italy and Poland are the countries that reported the highest amounts;
- High irregular financial amounts reported do not necessary imply that in country occur more frauds and irregularities than in the other. The reason could be a higher number of controls;
- The most frequent method for detecting irregularities is the ‘control of documents’, while ‘control by police’ proved the method with the highest average irregular amounts detected;
- ‘Not eligible expenditure’ is the most frequently reported type of irregularity. The other typologies reported are in line with previous years;
- ERDF remains the fund to which the highest number of irregularities and the highest amounts are related. This is normal considering that it is the Fund with the largest resources available.
- In 2008 “suspected frauds”, as a percentage of the total number of reported irregularities, represent around 7.4%. This share increases to 9.8% on the total irregular amounts.
Specific analysis
- The greatest majority of irregularities related to the programming period 2000-2006 are referred to Objective 1 regions which are also the regions benefiting from the greatest support. In general, there is a certain balance among the budget allocated and the irregularities reported;
- Objective 2 programmes present the highest irregularity rate, while Objective 1 programmes have the highest fraud rate;
- High rates of detection before payment emerge especially in some of the EU10 (namely Hungary, the Czech Republic, Latvia, Lithuania, and Poland) and, among EU15, in Sweden, the Netherlands and Italy.
Recovery
- In 2008, the irregular financial amounts decreased and so did the amounts to be recovered;
- 62% of the irregular amounts reported under regulation 1681/94 are to be recovered, while they represented 67% of the total reported irregular amounts in 2007. Member States are showing a better capability of reacting to the detection of irregularities by recovering or securing the European financial resources in a more effective manner;
- The amounts to be recovered are declining for the Cohesion Fund.
6.PRE-ACCESSION FUNDS (Annexes 18-21)
Descriptive statistical analysis presented hereinafter relates to the enlargement context and deals with different groups of beneficiary countries benefitting from pre-accession assistance and varied periods of allocations.
Agenda 200090 strengthened the pre-accession strategy by setting up two financial mechanisms: a pre-accession structural instrument (ISPA) to support improved transport and environmental protection infrastructures and a pre-accession agricultural instrument (SAPARD) to facilitate the long-term adjustment of agriculture and the rural areas of the applicant countries. ISPA91 and SAPARD92 complement the actions of the PHARE93 programme, which has been the EU aid programme for the current EU-12 since 1990.
The 10 Member States that joined the EU in 2004 received a Transition Facility in 2004-2006. Bulgaria and Romania received a Transition Facility in 2007.
Croatia received PHARE and ISPA (2005-2006), SAPARD (2006), CARDS (2001-2004) and is the only country reporting CARDS94 irregularities since 200695. Turkey received pre-accession assistance via similar but separate instruments, budget lines and procedures.
Since 1 January 2007 EU pre-accession assistance has been channeled through a single Instrument for Pre-accession Assistance (IPA)96 designed to deliver support for candidate and potential candidate countries. The preliminary allocation for IPA in the period 2007-2013 is EUR 11.5 billion (in 2008 – EUR 1.4 billion).
General overview
In 2008 the Commission/OLAF received 2,133 reports on pre-accession funds (PHARE, SAPARD, ISPA, Transition Facility (TF), CARDS, Turkish pre-accession instrument (PA)) from the Member states and Candidate countries. The received information consists of 523 new cases detected by the national authorities in 2008 and 1,610 follow-up reports on the previously reported cases. The number of new cases received on pre-accession assistance is the highest since the reporting obligation started to be fulfilled by the reporting countries.
The total amount affected by irregularities in 2008 was EUR 60,782,354 where PHARE accounts for EUR 26,731,257 (183 cases), SAPARD – EUR 29,046,300 (213 cases), ISPA – EUR 4,055,042 (99 cases), TF – EUR 545,822 (4 cases), PA – EUR 314,763 (18 cases), CARDS – EUR 89,170 (6 cases).
6.1.Reporting discipline
The obligation to report irregularities in the area of pre-accession assistance is established in the Financing Agreements/Memoranda signed between the acceding countries, Candidate countries and the European Community and is in accordance with the provisions of Commission Regulation (EC) 1681/199497. This obligation is yet enhanced by Commission decision granting conferral of management on extended decentralised basis (EDIS).
Pre-accession assistance related irregularities are reported using a standard paper template. The submitted information is processed and registered in the data base managed by OLAF.
In general, the quality of provided information is getting better and reporting countries are cooperative. However, insufficient or obscure reported information remains to be a challenge.
Inconsistencies and even contradictions in different sections of the same report still occur. In absolute numbers Romania has the highest number of notifications containing one or more content mistakes (44), followed by Bulgaria (32). In relative terms Slovenian notifications are the least reliable. These estimations are heavily influenced by the number of communications sent by the respective countries. Currently Romania and Bulgaria are the countries from which the highest numbers of notifications are received; therefore the number of mistakes is yet acceptable. More efforts could be put into the initial quality checks on a national level to avoid the inconsistencies.
Most common mistakes are incorrect or incomplete financial aspects of the reports, missing practices employed in committing irregularities, missing types of irregularities. The incorrect numbering remains to be a technical obstacle in cooperation with MSs’ authorities on follow up related issues. Bulgaria has achieved significant improvements on that issue while Romania needs to pay more attention.
6.1.1.Timely reporting
Late reporting of irregularities poses problems for OLAF when working with analysis of the reported information. In 2008 4 countries out of 14 missed the reporting deadline98 for at least one of the pre-accession funds. Some special cases are worth to be mentioned. Hungary failed to report on time throughout the year but improvements occurred in the last quarter. Slovakia was very late to report first and second quarters and several reminders were sent. Bulgaria missed the reporting deadline for SAPARD in 4th quarter, so 17 new cases and last updates of previous reports could not be included in this analysis. Turkey does not follow the reporting schedule and experiences very big delays.
Table PA 1: Timely reporting
Failure to respect reporting deadlines by the Member States and Candidate Countries makes the preparation of a thorough analytical overview of detected irregular cases rather difficult. Since pre-accession assistance related irregularities are reported in paper some time is needed to process them.
6.1.2.Time gaps
In accordance with the Regulation 1681/94 there are some compulsory dates to be filled in (date of first information, the period of irregularity, date when the irregularity was established). The calculations in Table PA 3 estimating compliance are based on the dates presented in the first notifications sent in 2008. Failure to indicate at least one of the required dates affects the compliance. Some reporting countries tend to leave out the dates; therefore, more attention should be concentrated on this aspect.
The average time span for relevant authorities to detect an irregularity is 24 months. However, for Poland and Estonia it took 3 years, for Romania and Malta – 2 years. This time period also signals the end of the project cycle.
It takes almost 4 months on average to report the detected irregularities99. Turkey, Slovakia, Slovenia, Hungary, and Czech Republic were late to submit the information on the detection to the Commission.
6.1.3.Classification of irregularity
Reporting countries are obliged to indicate whether the reported irregularity can be considered as ‘suspected fraud’ or not. When the reporting countries fail to classify the reported cases OLAF does it on the basis of the overall information provided in the report. Table PA 2 provides a rate of compliance with respect to classification of irregularity.
Table PA 2: Compliance in 2008 - classification of irregularities
Estonia and Croatia fully complied. Malta and Slovenia did not classify any of the reported irregularities in 2008, but they reported very few. On average 71% of cases were classified. There is a visible increase in compliance with reference to 2008 so reporting countries are putting more efforts in fulfilling the necessary obligations.
6.1.4.Summary
Table PA 3 makes a summary of different aspects of compliance rate, namely dates required by the legislation, data on natural and legal persons involved, classification of cases, reporting deadlines. The countries are listed in order of compliance with the requirements established by the Regulation 1681/94. Inconsistencies for each country are more precisely seen by analysing separate columns.
The summary reveals that countries reporting few cases like Slovenia, Malta and Estonia get lower positions in the list because the mistakes get high weighting. They become 'victims of statistics' and should not be over judged. Slovakia experienced difficulties in reporting due to internal institutional changes.
Summary compliance of 91.6% has improved in comparison to 2007 (82.4%). Even so, it manifests some limitations with reference to further analysis carried out in the report. Low compliance with the reporting obligation might imply some weaknesses in the administrative set up of the reporting mechanism.
Table PA 3: Compliance per reporting country 2008
6.2.General Trends
The intention of this descriptive analysis is to provide an overview of the reported irregularities in 2008 and to compare the reporting trends observed during the period 2002-2007.
One should take into account that Member States and Candidate Countries must report to the Commission cases exceeding the established thresholds. Reports below the threshold are included in the overall analysis (see Annex 19). Since the reporting countries decided to report such cases to the Commission it is possible that irregular amounts are only indicative and will be specified. Therefore, they are likely to get higher by means of the coming follow up reports.
6.2.1.Overall trend
The number of cases reported (first communications) in 2008 increased by 58%, while the number of follow-up reports increased by 25% in comparison to 2007.
2008 was the year when the new cases reported to OLAF reached the peak. This could be explained by the fact that more countries benefitting from pre-accession assistance started active reporting of irregularities. Previously only 'nil reports' were received. Moreover, a wider variety of pre-accession instruments is covered due to different programming periods and phases of enlargement process.
The high number of updates illustrates that beneficiary countries are actively proceeding with administrative or judicial measures concerning the cases detected previously. However, the high number of updates is not characteristic to all the reporting countries. Some EU-10 countries are clearly phasing out. They are finalising pre-accession funded projects and the last remaining procedures. EU-2 reports very high numbers of updates as they are still in the middle of the project cycle. Turkey, however, sent vey few follow-up reports and such a situation raises concerns.
Chart PA 1: Irregularities communicated by reporting countries (2002-2007)
6.2.2.Trend related to Member States and Candidate countries
Irregularities are not distributed equally among the reporting countries due to different periods of eligibility of expenditure. Three groups of reporting countries can be distinguished, namely 2004 accession Member States, 2007 accession Member States, and Candidate countries – Croatia and Turkey. In 2008 EU-10 account for 19%, Bulgaria and Romania – 73%, Croatia and Turkey – 7% of the total number of cases. Talking about the total irregular amount reported EU-10 make 11%, Bulgaria and Romania - 83%, Croatia and Turkey – 6%.
This grouping is well reflected providing a breakdown in Chart PA 2:
Chart PA 2: Reporting trend EU-10 and EU-2
6.2.3.Amounts involved
For the purposes of this report the term eligible amount stands for the amount committed to be paid when the contract is concluded under the condition that the expenditure incurred is justified and eligible.
With regard to the amounts involved in the irregularities reported to the Commission, the total irregular amounts went up while total eligible amount went down in 2008.
In 2008 the eligible amount decreased by 43% in comparison to 2007. This was caused by figures on ISPA expenditure; however, there are certain doubts if these figures were reported correctly both in 2007 and 2008.
EU-10 does not report ISPA irregularities any longer due to the transfer of expenditure into the Cohesion Fund. Consequently, mainly Bulgaria and Romania sent communications for ISPA in 2008 (see Annex 18) and the first ISPA case was received from Croatia.
There is still a striking difference between both the number of cases and irregular amounts reported by Bulgaria and Romania. The number of ISPA cases reported by Bulgarian authorities has increased five times combined with three time increase in the irregular amounts. A sharp increase was observed during 4th quarter 2008 when the number of new cases reported (15) is 36% higher than the total number of ISPA cases (11) reported since 2004 by Bulgaria. This is a direct outcome of Commission audits. As for Romania the number of cases remained on the same level but the irregular amount decreased by 40%. Clearly, there is a difference in the approach to irregularity reporting between those two countries.
Irregular amount reported in 2008 went up by 90% and reached roughly EUR 61 million for all funds in total. The irregular amounts went up sharply for PHARE (74%) and SAPARD (180%); for PA and CARDS a small increase is seen; for ISPA, on the contrary, the irregular amount decreased by 31%.
Chart PA 3: Irregular amounts by fund
The chart has to be interpreted with some caution. The number of reporting countries is growing; therefore the affected amounts are gradually increasing. What is more, pre-accession assistance funded projects run over several years while the affected amounts are calculated with reference to the reporting year. So the closing years are becoming peak years.
To be more precise, however, it is worth looking at the breakdown by groups of reporting countries. Since the greater part of the data set analysed originates from Romania and Bulgaria (see Chart PA 2), the trends are influenced by their reporting patterns.
The total irregular amount reported by EU-10 in 2008 rose by 8%. The percentage went down for PHARE (76%) and increased significantly for SAPARD (167%). There are several reasons behind it. For EU-10 many projects which did not get into the audit samples before, are being checked only when the final payment claims are submitted. SAPARD irregularities in 2008 were mostly detected by ex-post controls after the final payments had been made.
The situation for EU-2 has changed significantly. The total irregular amount reported increased by 152%; PHARE increase makes 135% and SAPARD – 173%. Enhanced Community controls in Bulgaria triggered higher detection of irregularities and it is well seen in the statistics. Big irregular amounts manifest that procurement rules/procedures were infringed, eligibility rules not followed, a number of projects failed to be implemented or contract conditions were not fulfilled, therefore, the whole value of the contract becomes irregular.
Furthermore, it is very important to differentiate between cases with potential financial impact detected before the payments and real financial impact resulting in recoveries (see 6.3.3).
The major part of irregular cases is not fraudulent and corrective measures are undertaken (see 6.3.2).
The highest number of cases in 2008 was reported by Romania, Bulgaria, and Poland (respectively 246, 140, and 46). The pattern, however, is different with reference to the irregular amounts. Bulgaria, Romania, Croatia, and Lithuania reported the highest irregular amounts. Annex 18 presents all the figures in detail per each reporting country.
6.2.4.Impact on the budget
Estimation of the impact on the budget is based on the information provided in the irregularity reports and is totally linked to countries’ approach to reporting and cooperation with the Commission.
While estimating the impact of pre-accession assistance irregularities on the budget one needs to take into account different groups of beneficiary countries benefitting from pre-accession assistance and varied periods of allocations.
After the accession of EU-10 in 2004 no new expenditure was committed (except for SAPARD where some commitments were made up at the end of 2004). PHARE, ISPA, SAPARD, the Turkish pre-accession instrument, and CARDS projects will be gradually completed by around 2010.
As an extension of financial assistance provided under PHARE before the accession, Transition Facility was employed in 2004-2006. 2006 was the final programming year for the Transition Facility, although contracting continued until 2008 and payment of funds until 2009. In 2007 EUR 78 million were allocated to Bulgaria and Romania under TF.
With regard to SAPARD, for Romania and Bulgaria automatic period of decommitment has been extended till December 2009 so contracting continues.
2007 was the first year of commitments under IPA focusing on Candidate and Potential Candidate countries for the programming period 2007- 2013.
Chart PA 4: Share of irregular amount in eligible amount of reported cases
The comparison is drawn between the total values of the projects reported and the total irregular amounts per country. The share of irregular amount reached 5.4% in 2008 while in 2006 it was 1.9%. Although the figure has increased, Chart PA 4 illustrates that the share of irregular amount in relation to the total value of expenditure is relatively very little.
In comparison to the overall tendency, the share for Romania is very low and it highly influences the total figure. Lithuania, Hungary, Latvia, Estonia, and Poland report cases with rather high irregular share, which sometimes equals the total value of the project.
The impact of irregularities reported in 2008 on budgetary allocations for the same year is 4.4% (EUR 61 million on EUR 1.4 billion of allocations). However, this figure should be taken with great caution as the programming periods and also beneficiary countries are different. Since 2007 pre-accession assistance allocations are given to Candidate and Potential candidate countries in the Balkans100.
It would be more precise to calculate the impact of irregularities on the whole programming period and the 'real' beneficiaries. Thus the result is 0.76% (EUR 143 million total irregular amount reported so far on the overall budget of roughly EUR 19 billion).
6.2.5.Method of detection
Reporting countries are required to indicate the manner in which the irregularity was discovered. In 2008 reporting countries put more efforts in categorizing methods of detection used on the basis of the pick list provided by OLAF. However, in a number of cases the codes were attributed by OLAF on the basis of the descriptions (frequently rather vague) presented in the reports.
Table PA 4 presents an overview of methods of detection which helped to trace most cases, the highest irregular amounts, and the highest average detected amounts. Most of the irregularities and the highest irregular amounts in 2008 were detected by means of ‘Control of documents’. The same method took the lead in 2007. This method actually reflects one of the key responsibilities of the national authorities implementing EU funds under decentralised and shared management modes. Besides, this method is of a rather general nature and can be used throughout the project cycle.
On the spot controls appeared to be very effective and the same tendency is observed in the course of several years. National administrative or financial controls trigger the third highest number of detections.
Some new tendencies are spotted in 2008, namely the role of 'Community controls. Moreover, the highest average amounts were detected while carrying out controls under the request of the Commission. It needs to be mentioned that most of such cases were reported by Bulgaria in relation to the specific situation on the management of EU funds there in 2008.
Information received from whistleblowers101 proved to be useful and instigated the detection of high value cases (second highest average).
Several cases in the data set do not provide relevant information on the method of detection employed and state 'other'.
In general, the most frequent methods of detection imply both ex-ante and ex-post controls. It is a natural outcome since the data set involves projects under different stages of implementation (from procurement to final payments).
Table PA 4: Method of detection in 2008 by number of cases and irregular amounts detected
6.2.6.Types of irregularities
Reporting countries are obliged to indicate the practices employed in committing the irregularity (modus operandi)102. This can be done by using the provided codes or giving a description. The list of codes provides a collection of types of irregularities. If the reporting countries do not choose the relevant code, OLAF picks the most appropriate code on the basis of the description. This is necessary to make the data reported by different countries comparable. Failure to provide clear and accurate descriptions by reporting authorities leads to difficulties in analyzing the data.
Most common type of irregularity by the number of received cases in 2008 was ‘Failure to respect other regulations/contract conditions' followed by 'Non –eligible expenditure' (which was the most frequent modus operandi in 2007) and ‘Failure to fulfil commitments entered into’. This is yet another indication that a number of projects failed to be implemented.
'Falsified supporting documents' in 2008 got into top five of the most frequent modus operandi and pertain to the highest irregular amount and also average irregular amount. This type of irregularity does not indicate that frauds have already been established and only refers to the element that raised suspicion of the competent national authorities. Therefore, all these cases are classified as 'suspected fraud' and are analysed in detail in 6.3.2. They were reported by Turkey, Slovenia, Croatia, Poland, Czech Republic and Bulgaria. Bulgarian cases involving allegations of falsified supporting documents account for 72% of the total cases bearing this type of infringement. 'Failure to respect deadlines' again signals problems in the project implementation with second highest average irregular amount.
For SAPARD the most frequent modus operandi reported in terms of the number of cases is 'Failure to fulfil commitments entered into’, and in terms of the amounts detected - 'Falsified supporting documents.
For PHARE the most frequent modus operandi reported in terms of the number of cases is 'Unjustified expenditure' and in terms of the amounts - ‘Failure to respect deadlines'.
'Falsified supporting documents' occur in 9 PHARE cases and 25 SAPARD cases reported to OLAF.
Table PA 5: Types of irregularities by number of cases and irregular amounts
6.3.Specific analysis
6.3.1.Irregularities affecting different funds
The total number of cases reported augmented in comparison to 2007 (by 58%). Reporting tendencies noticed during the previous years did not alter and most irregularities were communicated for PHARE and SAPARD funded projects. Those two funds made 76% of the irregularities reported.
As demonstrated by Chart PA 5 the highest number of cases reported in 2008 concerned SAPARD and made almost half of the total cases reported in numbers. The biggest share of irregular amount was also reported for SAPARD (47% of the total).
Chart PA 5: Distribution of communications per fund in 2008
2008 is the year when such a wide variety of pre-accession assistance programmes was reported. The first 4 cases were reported for Transition Facility. Croatia began reporting irregularities on CARDS. Turkey started to report more on Turkish Instrument for pre-accession. Previously numbers were so low that they were not analysed separately.
Taking a closer look at ISPA reports one observes that the number of cases does not correlate with the irregular amounts reported. Usually ISPA projects are huge in value but the irregular amounts reported are relatively little (no reporting threshold was established). A number of ISPA cases reported in 2008 do not have any financial impact indicated even thought the legislation requires providing indicative figures103.
In total, 366 projects were approved for ISPA, of which 201 were in the environment sector, 78 in the transport sector and 87 concerned technical assistance. The ISPA budget (in 2006 prices), before amendments and excluding technical assistance was 7,708 million euro104.
In general, ISPA projects experienced delays, addenda, and retendering due to various infringements of procedures. Peculiarities of ISPA programming might imply that irregularities occurring during tendering procedures have not been reported especially related to the conflict of interest. Financial corrections applied on a national level before claiming the funds from the Commission were not considered as irregularities.
Situation for SAPARD is different because the amounts reported as irregular frequently coincide with the total value of the project and full recovery is imposed. Most of SAPARD cases were detected after the payments had been made. This could be related to the fact that SAPARD for EU-8 was closed in 2007, but the checks can be carried out 5 years after the final payments had been made so it is likely that some new irregularities will still be detected in the coming years.
For Romania and Bulgaria automatic period of decommitment has been extended till December 2009 so contracting continues. These two countries are reporting the highest number of SAPARD irregularities (RO - 100, BG - 56105). More irregularities are likely to be detected in the contracts concluded before 2008. In 2008 Commission suspended payments for 3 major SAPARD measures in Bulgaria.
As for PHARE the situation in relation to 2007 changed and in 2008 the share of irregular amount reported increased. There is a direct link between these figures and the situation in Bulgaria as in 2008 44% of total PHARE cases and 57% of affected amount were reported by Bulgaria. Romania, respectively, accounts for 36% of cases and 34% of affected amount.
After the accession financial assistance in 2004-2006 was provided under Transition Facility. First TF cases were reported by Bulgaria, Lithuania, Latvia, and Slovenia.
Chart PA 6: Distribution of cases by number
Chart PA 6 presents the fluctuation of the number of cases throughout a period of 7 years. The lowest numbers of cases, with the exception of smaller scale programmes like CARDS, TF, PA, continue to be detected in ISPA with an increasing tendency since 2007. For PHARE and SAPARD the numbers were sharply growing since 2007. The trend is still dominated by PHARE and SAPARD. For 2008 a sharp rise by 103% is observed in the number of PHARE cases, an increase of 42% in SAPARD cases, and a lower increase of 14% in ISPA cases. The greater part of ISPA cases were reported by Romania.
6.3.2.Irregularity vs suspected fraud
In general, reporting countries do not classify some 30% of the reported irregularities although compliance has improved in comparison to 2007.
In 2008 cases classified as suspected fraud made up 9.85% (51) of irregularities and 21.7% of irregular amount. For the sake of transparency it is worth mentioning that these figures result from OLAF classification. According to the reporting countries’ classification, the share of suspected fraud is 8.5% (44).
One can notice in Chart PA 7 that the share of suspected fraud has changed for 2007. This is caused by follow up reports and reclassification of some cases after the new circumstances had been discovered.
Meanwhile, it is important to note that the analysed cases are just 'suspected frauds'. They are under investigation by relevant national authorities. The final precise figures can only be presented on 'established frauds' when the court rulings are made.
Chart PA 7: Share of suspected fraud in reported cases
7 countries out of 14 reporting countries reported suspected fraud cases in 2008. As illustrated by Chart PA 8, the highest number of suspected fraud cases was reported by Bulgaria, Romania, Turkey, and Poland. The highest amounts affected by suspected fraud are reported by Bulgaria in SAPARD programme, followed by Romanian and Croatian SAPARD. So this result shows that SAPARD is the programme most affected by suspected fraud. High amounts indicate that larger scale projects were reported as allegedly fraudulent.
Chart PA 8: Suspected fraud cases by country and fund in 2008
Distribution of fraud cases across the funds is not adequate. There is one suspected fraud case in ISPA (from 2008). For SAPARD 31 suspected fraud cases were reported in 2008 and 103 for all the years. For PHARE 14 reported in 2008 and 112 in total.
6.9% of cases reported in 2008 had an element of fraud i.e. falsified supporting documents. In PHARE they make 4.9%, in SAPARD 11.7% of the reported cases. This has to be interpreted with caution as reporting countries sometimes classify the case as fraud but indicate the modus operandi which is more likely to be an administrative infringement rather than criminal offence. An in depth analysis is necessary of a case basis.
In 2008 suspected fraud value in relation to the eligible value of the reported projects made a share of 1.2%. The total irregular amount of all the reported projects in relation to the total eligible amount is 5.4%. The percentage of the sum of suspected fraud in the total allocated amount for period 2002-2007 is respectively even lower – 0.14%. The figure, however, is much higher in comparison to 2007 report data. This outcome is explained by the fact that no new allocations were given to the reporting countries for PHARE, SAPARD, and ISPA but follow up reports were received and the financial aspects were specified. In addition, a high number of new cases were detected in 2008.
Relatively low figures justify the argument that the major part of reported irregularities is not fraudulent and is undergoing corrective actions. The cases classified as suspected fraud do not imply actual losses for the EU budget. The real pre-accession assistance related losses for EU budget could only be estimated when the programmes and the reported cases are closed (when deductions are made, recoveries are finalized, or final court rulings are published).
6.3.3.Recovery
The estimation of proportion of irregularities detected before any payments had been made reveals the extent of preventive actions taken by the reporting countries at the early stages.
Chart PA 9: Detection after payment
Chart PA 9 reveals the tendency that the greater of the reported irregularities were detected after the payments had been made. It is characteristic to the recent years and is a consequence of the final stages of the projects. A decrease in 2008 could be explained by Croatian and Turkish cases detected before payment during the contracting period. Some cases were also reported with indicative financial impact, therefore the result is likely to change.
In 2008 the amounts reported to be recovered increased by 107%.
Table PA 6 demonstrates the recovery situation per country. The table provides an overview for all the years and all the funds. It presents the recovery rate which is the percentage of the total amount recovered and the total amount to be recovered. Estonia has the highest recovery rate, followed by Poland.
The highest amount to be recovered in 2008 comes from SAPARD (EUR 16.5 million) just like in 2007. The amount to be recovered for PHARE is second highest – EUR 10.8 million. ISPA amount to be recovered is yet lower - EUR 1.6 million.
Romania reports the highest amounts to be recovered (EUR 7.5 million for PHARE and SAPARD each). Bulgaria reported EUR 2.7 million to be recovered in PHARE and EUR 5.9 million in SAPARD.
In general, the recovery rate got worse in comparison to 2007 (42.9%) and reached only 36.2% in 2008.
Table PA 6: Recovery by reporting country
The overview in Table PA 7 points out delays in the recovery process. There are some amounts to be recovered detected in 2003 where the risk of losses is high. Actually, the rate for 2003 increased only by 3.5%. The highest recovery rate is for cases dated 2004. It might be influenced by a special procedure required by SAPARD Multiannual Financing Agreement. The situation with respect to 2006 and 2007 has improved but still more efforts need to be taken to speed up the recoveries. Reporting countries should undertake recovery measures soon after the detection of irregularities and inform the Commission about the deductions made. The figure for 2008 is very low.
Table PA 7: Recovery rate by reporting year
6.4.Conclusions
- Member States and Candidate Countries reported 523 new irregularities in 2008 where the total financial amount affected was around EUR 61 million. 2008 is the peak year as both the number of new cases and the amounts affected are the highest so far received.
Reporting discipline
- The quality of provided information is getting better and reporting countries are cooperative.
- The classification of irregularities is an element of reporting which visibly increased compliance yet more efforts could be invested for further improvement. In 2008 the compliance rate was 70.9%.
- The rate of summary compliance with the reporting obligation has reached 91.6%.
General trends
- The number of cases reported in 2008 increased by 58% and the amount affected augmented by 90%.
- Irregularities are not distributed equally among the reporting countries. Three groups of reporting countries can be distinguished, namely 2004 accession Member States, 2007 accession Member States, and Candidate countries – Croatia and Turkey. In 2008 EU-10 account for 19%, Bulgaria and Romania – 73%, Croatia and Turkey – 7% of the total number of cases.
- The total irregular amount reported by EU-10 rose by 8% and the one for EU-2 increased by 152%.
- The increase in the irregular amounts is justified by the enhanced controls at the end of the project cycle and the growing number of reporting countries.
- The highest number of cases in 2008 was reported by Romania, Bulgaria, and Poland (respectively 246, 140, and 46). The pattern, however, is different with reference to the irregular amounts. Bulgaria, Romania, Croatia, and Lithuania reported the highest irregular amounts.
- Most of the irregularities and the highest irregular amounts in 2008 were detected by means of ‘Control of documents’. The same method took the lead in 2007. The increasing role of 'Community controls' is observed in 2008. The highest average amounts were detected while carrying out controls following the request of the Commission.
- Most common type of irregularity by the number of cases received in 2008 was ‘Failure to respect other regulations/contract conditions' followed by 'Non –eligible expenditure' (most frequent modus operandi in 2007) and ‘Failure to fulfil commitments entered into’.
Specific trends
- The highest number of cases reported in 2008 concerned SAPARD and made almost half of the total cases reported in numbers. The biggest share of irregular amount was also reported for SAPARD (47% of the total).
- 2008 is the year when a wide variety of pre-accession assistance programmes was reported i.e. the first cases on Transition Facility, CARDS, and more cases for Turkish Instrument for pre-accession.
- There is a direct link between rising SAPARD and PHARE figures and the specific situation in Bulgaria with regard to the management of EU funds. In 2008 44% of total PHARE cases and 57% of affected amount were reported by Bulgaria. Romania, respectively, accounts for 36% of cases and 34% of affected amount.
- In 2008 cases classified as suspected fraud made up 9.6% of irregularities and 21.7% of irregular amount.
- Distribution of fraud cases across the funds is not equal. There is one suspected fraud case in ISPA (from 2008). For SAPARD 31 suspected fraud cases were reported in 2008 (103 for all the years). For PHARE 14 suspected fraud cases were reported in 2008 (112 in total).
- The highest number of suspected fraud cases was reported by Bulgaria, Romania, Turkey, and Poland. The highest amounts affected by suspected fraud are reported by Bulgaria in SAPARD programme, followed by Romanian and Croatian SAPARD.
- In 2008 suspected fraud value in relation to the eligible value of the reported projects made a share of 1.17%. The total irregular amount of all the reported projects in relation to the total eligible amount is 5.4%.
- Estimation of the impact on the budget is based on reported information and is inextricably linked to countries’ approach to reporting and cooperation with the Commission.
Recovery
- The highest amount to be recovered in 2008 is reported under SAPARD.
- Romania reported the highest amounts to be recovered.
- Estonia has the highest recovery rate.
- The recovery rate got worse in comparison to 2007 (42.9%) and reached only 36.2% in 2008.
7.Direct Expenditure – Centralised direct Management
7.1.Methodology and scope
This chapter contains a descriptive analysis of the data on recovery orders issued by Commission services in relation to expenditures managed under ‘centralised direct management’106, which is one of the four implementation modes the Commission can use to implement the budget. This chapter is based on data retrieved from the ABAC system, which is a transversal, transactional information system allowing for the execution and monitoring of all budgetary and accounting operations by the Commission. The system was developed by the Commission to facilitate compliance with the requirements of the Financial Regulation and its implementing rules.
One of the functionalities of the ABAC system is the ‘Recovery Context’, which gathers detailed information on recovery orders issued by the Commission services and registered in ABAC. The information introduced into the recovery context relates, amongst others, to the qualification of the recovery order: financial officers have to indicate for each recovery order whether it relates to an error, an irregularity or a suspected fraud that has been identified in the implementation of a grant agreement or contract. In case the recovery order is qualified as 'suspected fraud', OLAF has to be notified. For each recovery order, information is given on the method of detection as well as the type of irregularity or suspected fraud that constitutes the basis for the recovery.
The recovery context is a relatively new functionality within ABAC. The collection of data from the Commission services only started recently and the current data available in ABAC refer to recovery orders issued since 2008. This first exercise revealed a number of practical problems, which are related to different interpretations throughout the Commission of definitions used in ABAC; the omission of certain information in the 'Recovery Context' and the link of the information with other data in ABAC.
A few methodological constraints in relation to the usage of the recovery data should be mentioned as well. Irregularities detected at an early stage of the contract implementation lead to a reduction of the interim or final payments. In these cases, there is no need to issue a recovery order and the irregularity is not recorded in the recovery context. This leads to an underreporting of irregularities. On the other hand, an irregularity involving only a small amount could generate a recovery order that is substantially higher if it is combined with e.g. the recovery of payments that were not used. In the latter case, an overreporting might occur.
Nevertheless, analyses on basic financial information could be made and it is expected that the type and scope of the analyses for the next exercises can be extended after the implementation of further detailed guidelines and the improvement of IT tools.
For the financial analyses in this chapter, the following data were used from ABAC:
- The number and corresponding financial amounts of recovery orders, which were registered after validation by the authorising officer, including information on the place of residence of the contract partner of the Commission and the budget line concerned; the method of detection; the type of irregularity identified and the time span between the approval of a budget commitment, the notification of a recovery order and the return payment of the undue funds to the Commission;
- The amount of a commitment to which a recovery order is linked and for which a payment has been made to a beneficiary. In most cases, the commitment is higher than the amount to be recovered.
In the remainder of this chapter, the term recovery refers to the recovery order and the financial amount involved, whereas the term qualification refers to the qualification of the recovery order: irregularity or suspected fraud.
7.2.General analysis
In 2008, the Commission services registered 932 recovery orders in ABAC that were qualified as irregularities or suspected fraud. The committed budget for these 932 recoveries was EUR 580 million, of which EUR 34.7 million was identified as irregular107.
7.2.1.Financial amounts involved
The financial impact of the 932 recoveries registered in 2008 was EUR 34.7 million, which includes an amount of EUR 3.2 million for the 19 recoveries qualified as suspected fraud and notified to OLAF. Table DE1 gives an overview of the aggregated financial commitments by policy domain as well as the number and financial amounts of recoveries, by qualification and policy domain. The classification into policy domain is provided for ‘internal policies’ and ‘external actions’ (table DE1). Table DE2 gives a more detailed classification of the policy area to which the recovery orders relate. The recovery orders have been issued for commitments that relate to several budget exercises, some even dating back to the 1990s, during which different budget headings were used. The budget structure of 2008 was used for tables DE1 and DE2. In cases where the budget title of a commitment from an earlier budget exercise does no longer exist, the most resembling budget title from the 2008 budget was used. The column ‘commitments’ contains the addition of all the commitments made during previous budget exercises108 for which a recovery order was issued in 2008. The last column indicates the addition of the amounts to be recovered (including suspected fraud) as percentage of the aggregated commitments.
Table DE 1: Commitments and Recoveries (number and amounts) by policy domain.
The table shows that the irregular amounts only represent 6% of the commitments for which recovery orders were issued. More recovery orders were issued for commitments made under the internal policies domain than the external assistance actions, but the relative share for external actions for both the number and the amounts to be recovered is substantially higher.
Table DE2 further specifies the recoveries by budget title. It should be observed that there is not always a direct link between the budget title or budget line and the Directorate General dealing with its implementation, as several DGs can share the appropriations on a budget line. The information in this table do not refer to the number of irregularities or suspected fraud per Directorate General.
Table DE 2: Recoveries (number and amounts) by qualification and budget title
7.2.2.Financial amounts involved by geographical area and Member State
Table DE3 summarizes the recoveries per geographical area, where the beneficiary of the Community funding resided. The column 'average' indicates the average amount (in EUR 1,000) per recovery.
Table DE 3: Recoveries (number and amounts) by region of residence and qualification
| Contractor place of residence | Commit-ments 1 000 € | Recoveries | ||||||||
| Irregularity | Suspected Fraud | |||||||||
| N | % | € 1 000 | % | Average | N | € 1 000 | % | Average | ||
| ACP109 | 11,223 | 12 | 1.3 | 897 | 2.9 | 75 | 1 | 1,723 | 53.4 | 1,723 |
| Africa | 2,566 | 2 | 0.2 | 38 | 0.1 | 19 | ||||
| Asia & Pacific | 70,322 | 22 | 2.4 | 724 | 2.3 | 33 | 4 | 408 | 12.6 | 102 |
| EFTA | 2,855 | 21 | 2.3 | 437 | 1.4 | 21 | ||||
| EU | 539,086 | 799 | 87.5 | 26,045 | 82.8 | 33 | 4 | 571 | 17.7 | 143 |
| Latin America | 3,228 | 10 | 1.1 | 177 | 0.6 | 18 | ||||
| NEP & PA110 | 8,978 | 30 | 3.3 | 2,071 | 6.6 | 69 | 7 | 241 | 7.5 | 34 |
| Not indicated | 20,554 | 17 | 1.9 | 1,059 | 3.4 | 62 | 3 | 286 | 8.9 | 95 |
| Total | 658,812 | 913 | 100 | 31,447 | 100 | 34 | 19 | 3,229 | 100 | 170 |
Most of the entities concerned have their residence in the European Union: 803 recovery orders (86.2% of 932) were issued for an amount of EUR 26.6 million (76.8% of EUR 34.7 million). 129 recovery orders (13.8%) were issued to entities residing outside the EU, for a total amount of EUR 8.1 million (23.2%). In the latter category, more than 30% of the amount of recoveries related to entities residing in ACP countries (EUR 2.6 million), followed by countries eligible for assistance under the neighbourhood policies and pre-accession assistance (EUR 2.3 million).
The highest number of recovery orders for suspected fraud (7 cases) concerned countries benefiting from neighbourhood and pre-accession assistance, of which 5 (worth up to EUR 127,000) were registered in Georgia. The highest recovery order was issued to a contractor in South Africa, which accounted for 53.4% of recovery orders issued to entities located outside the European Union.
Table DE4 gives an overview of the recoveries per Member State of residence of the entities in the European Union and the qualification of the recovery. This table details the findings for the European Union reported in table DE3. The 'average' column is the average amount, in EUR 1,000, per recovery.
Table DE 4: Recoveries (number and amounts) by Member State and qualification
| Contractor place of origin | Commit-ments € 1 000 | Recoveries | ||||||
| Irregularity | Suspected Fraud | |||||||
| N | % | € 1 000 | % | Average | N | € 1 000 | ||
| AT | 6,770 | 23 | 2.9 | 1,115 | 4.3 | 48.5 | ||
| BE | 83,654 | 67 | 8.4 | 717 | 2.8 | 10.7 | ||
| BU | 37 | 6 | 0.8 | 39 | 0.1 | 6.5 | ||
| CY | 213 | 4 | 0.5 | 43 | 0.2 | 10.8 | ||
| CZ | 1,450 | 7 | 0.9 | 204 | 0.8 | 29.1 | ||
| DE | 70,137 | 55 | 6.9 | 2,699 | 10.4 | 49.1 | ||
| DK | 4,029 | 18 | 2.3 | 1,729 | 6.6 | 96.1 | ||
| EE | 915 | 9 | 1.1 | 52 | 0.2 | 5.8 | ||
| EL | 12,991 | 44 | 5.5 | 1,835 | 7.0 | 41.7 | 1 | 102 |
| ES | 67,606 | 66 | 8.3 | 3,706 | 14.2 | 56.2 | 2 | 458 |
| FI | 9,949 | 23 | 2.9 | 254 | 1.0 | 11.0 | ||
| FR | 47,148 | 95 | 11.9 | 2,905 | 11.2 | 30.6 | ||
| HU | 1,907 | 12 | 1.5 | 117 | 0.4 | 9.8 | ||
| IR | 1,207 | 10 | 1.3 | 241 | 0.9 | 24.1 | ||
| IT | 67,600 | 70 | 8.8 | 2,622 | 10.1 | 37.5 | ||
| LT | 289 | 18 | 2.3 | 187 | 0.7 | 10.4 | ||
| LU | 384 | 8 | 1.0 | 90 | 0.3 | 11.3 | ||
| LV | 9,759 | 8 | 1.0 | 194 | 0.7 | 24.3 | ||
| MT | 207 | 2 | 0.3 | 21 | 0.1 | 10.5 | ||
| NL | 38,245 | 63 | 7.9 | 3,271 | 12.6 | 51.9 | ||
| PL | 7,801 | 27 | 3.8 | 288 | 1.1 | 10.7 | ||
| PT | 22,103 | 29 | 3.6 | 590 | 2.3 | 20.3 | ||
| RO | 143 | 4 | 0.5 | 126 | 0.5 | 31.5 | ||
| SK | 10,143 | 25 | 3.1 | 212 | 0.8 | 8.5 | ||
| SL | 4,959 | 12 | 1.5 | 115 | 0.4 | 9.6 | ||
| SV | 27,194 | 26 | 3.3 | 568 | 2.2 | 21.8 | ||
| UK | 42,247 | 68 | 8.5 | 2,106 | 8.1 | 31.0 | 1 | 11 |
| Total EU | 539,086 | 799 | 100.0 | 26,045 | 100.0 | 32.6 | 4 | 571 |
Most of the recoveries were made concerning beneficiaries residing in 5 Member States: France (11.9%), Italy (8.8%), the United Kingdom (8.5%), Spain (8.3%) and Belgium (8.4%). Entities residing in the Member States of the EU account for almost 75% of the amount of the recoveries. Entities from whom the highest aggregated amounts have to be recovered are residing in Spain (15.6%, EUR 4.2 million), the Netherlands (12.3%, EUR 3.3 million), France (10.9%, EUR 2.9 million), Germany (10.1%, EUR 2.7 million) and Italy (9.9%, EUR 2.6 million) were above the average. These five Member States account for almost 60% of the amounts of recoveries. The high rates of Belgium can be explained by the fact that most of the European Institutions have their seats in this Member State: this leads to the conclusion of a relative higher number of contracts and grant agreements with entities residing in this country.
Recovery orders involving cases of suspected fraud from entities based in one of the Member States made up only 17.7% of the amounts of recoveries, but this figure is strongly determined by two cases from Spain, which account for more than 80% of the suspected fraud amounts.
7.2.3.Method of detection
For each recovery order, the Commission service that issued the order has to indicate how the irregularity or suspected fraud was detected. Six different categories have been pre-defined, two of which fall under the direct responsibility of the European Commission: On-the-spot checks and the verification of documents by desk officers and financial officers responsible for the implementation of the commitment. Table DE5 gives a breakdown of the recoveries by method of detection.
Table DE 5: Recoveries (number and amounts) by method of detection
Most of the irregularities or suspected fraud for which a recovery order was issued, were detected on the basis of Community controls: 711 recoveries (76.3%) accounting for EUR 22.9 million (66.1%). Within the ‘Community controls’ desk controls generated were more than two times recoveries than ‘on-the-spot controls’. It is interesting to note that the relatively modest share of recoveries issued on the basis of OLAF activities or detected by ‘Others’ (4.6%) account for an amount to be recovered of 17.2%. The average amount for recoveries is EUR 37,200 but two methods of detection (OLAF and Other) have a substantial higher average. There was more than one method of detection in 8 cases. Table DE6 gives a further breakdown of the recoveries by method of detection and by qualification. The last column is the average amount per recovery.
Table DE 6: Recoveries (number and amount) by method of detection and by qualification
| Qualification | Method of detection | N | % | € 1 000 | % | Av. |
| Irregularity | Community control / Check on the spot | 210 | 23.0 | 7,740 | 24.6 | 36.9 |
| Community control / Desk check documents | 499 | 54.7 | 14,930 | 47.5 | 29.9 | |
| European Court of Auditors | 3 | 0.3 | 85 | 0.3 | 28.3 | |
| Independent control (supervising engineers, auditors) | 172 | 18.8 | 5,490 | 17.5 | 31.9 | |
| OLAF | 8 | 0.9 | 1,057 | 3.4 | 132.1 | |
| Other | 21 | 2.3 | 2,145 | 6.8 | 102.1 | |
| Total of Irregularity | 913 | 100.0 | 31,447 | 100.0 | 34.4 | |
| Suspected fraud | Community control / Desk check documents | 2 | 10.5 | 253 | 7.8 | 126.5 |
| Independent control (supervising engineers, auditors) | 3 | 15.8 | 193 | 6.0 | 64.3 | |
| OLAF | 8 | 42.1 | 300 | 9.3 | 37.5 | |
| Other | 6 | 31.6 | 2,482 | 76.9 | 413.7 | |
| Total of Suspected fraud | 19 | 100.0 | 3,229 | 100.0 | 169.9 | |
| Total | 932 | 34,675 | 37.2 |
Table DE6 shows the differences between irregularities and suspected fraud when it comes to their detection. ‘Community desk checks of documents’ was the most common method of detection of recoveries classified as irregularity for both the number of recoveries and the associated amounts, though the share of the latter drops slightly compared to the other methods of detection. Among the recoveries classified as suspected fraud, both OLAF and ‘Other’ were the most frequent methods of detection by number of cases (respectively 42.1 % and 31.6 %). It was only in a few recoveries that desk controls led to a ‘suspected fraud qualification’, which could imply that the design of these controls could be optimized to enhance the possibility of suspected fraud detection. The substantial higher amount per recovery for those qualified as suspected fraud compared to those qualified as irregularity must be observed.
7.2.4.Types of irregularity
The Commission services also had to indicate the type of irregularity that was detected when the recovery order was issued. The number of categories is relatively high compared to e.g. the method of detection, and the interpretation of these findings must be done with care as interpretation problems easily occur with the identification of the correct type of irregularity. It can not be excluded that the same irregularity is scored differently by different financial officers or that some of the categories used in this classification have a small overlap.
Table DE7 presents recoveries by main types of irregularities.
Table DE 7: Recoveries (number and amount) by type of irregularity
| Type of irregularity | Number | % | € 1 000 | % | Average |
| Action not implemented | 37 | 4.0 | 2,373 | 6.8 | 64 |
| Action not in accordance with the rules | 211 | 22.6 | 6,449 | 18.6 | 31 |
| Advances not correctly reflected | 1 | 0.1 | 13 | 0.0 | 13 |
| Beneficiary ineligible | 3 | 0.3 | 331 | 1.0 | 110 |
| Calculation error | 53 | 5.7 | 1,423 | 4.1 | 27 |
| Copy documents rather than originals | 3 | 0.3 | 149 | 0.4 | 50 |
| Deadline not respected | 42 | 4.5 | 762 | 2.2 | 18 |
| Expenditure declared not related to the action | 46 | 4.9 | 1,926 | 5.6 | 42 |
| Expenditure not covered by legal base | 137 | 14.7 | 4,935 | 14.2 | 36 |
| Falsified documents | 7 | 0.8 | 241 | 0.7 | 34 |
| Inappropriate accumulation of aid | 5 | 0.5 | 683 | 2.0 | 137 |
| Incomplete Documents | 32 | 3.4 | 552 | 1.6 | 17 |
| Incorrect rates used in calculating the claim | 96 | 10.3 | 3,904 | 11.3 | 41 |
| Missing Documents | 188 | 20.2 | 4,072 | 11.7 | 22 |
| Not Applicable | 13 | 1.4 | 2,184 | 6.3 | 168 |
| Public procurement procedures not respected | 6 | 0.6 | 167 | 0.5 | 28 |
| Quality of action inadequate | 22 | 2.4 | 3,667 | 10.6 | 167 |
| Recoverable VAT, interest received not correctly reflected | 30 | 3.2 | 844 | 2.4 | 28 |
| Total | 932 | 100 | 34,675 | 100 | 37 |
The most common type of recoveries qualified as irregularities is ‘Action not in accordance with the rules’ (211 recoveries or 22.6%) followed by ‘Missing Documents’ (188 recoveries or 20.2%). The share of the latter type falls sharply to 11.7% if the irregular amounts are considered. The third most common type is ‘Expenditure not covered by legal base’ (137 recoveries or 14.7%). The last type for which the share exceeds 10% is ‘Incorrect rates used in calculating the claim’ (96 recoveries or 11.3 %). In 316 recoveries, more than one type of irregularity was indicated. The most frequent pair of identified irregularities was ‘Recoverable VAT and interest received not correctly reflected’ combined with ‘Incorrect rates used in calculating the claim’. This pair of irregularities occurred in 30 recoveries. The second pair was ‘Incorrect rates used in calculating the claim’ combined with ‘Missing Documents’, which occurred in 24 recoveries. The pair ’Expenditure not covered by legal base’ combined with ’Incorrect rates used in calculating the claim’ occurred in 23 cases.
Table DE8 presents the most frequently selected pairs of irregularities. Totals are not given in this table because the table is not complete: the rows indicate all the categories, whereas the columns only represent the most frequent categories of irregularities, which led to some, but not all, cells appearing twice in the table. The most important findings in this table relate to cells with values of 10 as they could hint at a certain irregularity or fraud pattern.
Table DE 8: The most frequently indicated pairs of irregularity types
| Type of irregularity | Incorrect rates used in calculating the claim | Missing Documents | Action not in accordance with the rules | Recoverable VAT, interest received not correctly reflected |
| Action not implemented | 1 | 1 | ||
| Action not in accordance with the rules | 6 | 21 | N/A | 22 |
| Action not used for intended purposes | 1 | 1 | ||
| Beneficiary ineligible | 1 | 3 | ||
| Calculation error | 5 | 4 | 5 | |
| Deadline not respected | 11 | 9 | 1 | |
| Expenditure declared not related to the action | 4 | 7 | 12 | 3 |
| Expenditure not covered by legal base | 23 | 7 | 15 | 5 |
| Inappropriate accumulation of aid | 3 | 1 | 1 | |
| Incomplete Documents | 10 | 11 | 5 | 3 |
| Quality of action inadequate | 4 | |||
| Incorrect rates used in calculating the claim | N/A | 24 | 6 | 30 |
| Missing Documents | 24 | N/A | 21 | 20 |
| Recoverable VAT, interest received not correctly reflected | 30 | 20 | 22 | N/A |
| Total | 106 | 108 | 99 | 90 |
The most common types of recoveries for which more than one irregularity was identified are ‘Missing documents’ in 108 cases, followed by ‘Incorrect rates used in calculating the claim’ in 106 recoveries.
Table DE9 provides an overview of the recoveries by type of irregularity, broken down by qualification of the recovery. For recoveries qualified as suspected fraud, only the categories were reported where the cells were not empty.
Table DE 9: Recoveries (number and amount) by type of irregularity by qualification
| Qualification | Type of irregularity | Number | % | € 1 000 | % | Average |
| Irregularity | Action not implemented | 36 | 3.9 | 2,296 | 7.3 | 64 |
| Action not in accordance with the rules | 211 | 23.1 | 6,449 | 20.5 | 31 | |
| Advances not correctly reflected | 1 | 0.1 | 13 | 0.0 | 13 | |
| Beneficiary ineligible | 2 | 0.2 | 271 | 0.9 | 136 | |
| Calculation error | 53 | 5.8 | 1,423 | 4.5 | 27 | |
| Copy documents rather than originals | 2 | 0.2 | 22 | 0.1 | 11 | |
| Deadline not respected | 40 | 4.4 | 697 | 2.2 | 17 | |
| Expenditure declared not related to the action | 46 | 5.0 | 1,926 | 6.1 | 42 | |
| Expenditure not covered by legal base | 135 | 14.8 | 3,201 | 10.2 | 24 | |
| Inappropriate accumulation of aid | 4 | 0.4 | 285 | 0.9 | 71 | |
| Incomplete Documents | 32 | 3.5 | 552 | 1.8 | 17 | |
| Incorrect rates used in calculating the claim | 96 | 10.5 | 3,904 | 12.4 | 41 | |
| Missing Documents | 187 | 20.5 | 4,045 | 12.9 | 22 | |
| Not Applicable | 11 | 1.2 | 1,788 | 5.7 | 163 | |
| Public procurement procedures not respected | 5 | 0.5 | 65 | 0.2 | 13 | |
| Quality of action inadequate | 22 | 2.4 | 3,667 | 11.7 | 167 | |
| Recoverable VAT, interest received not correctly reflected | 30 | 3.3 | 844 | 2.7 | 28 | |
| Total of Irregularity | 913 | 100 | 31,447 | 100 | 34 | |
| Suspected fraud | Action not implemented | 1 | 5.3 | 78 | 2.4 | 78 |
| Beneficiary ineligible | 1 | 5.3 | 60 | 1.9 | 60 | |
| Copy documents rather than originals | 1 | 5.3 | 127 | 3.9 | 127 | |
| Deadline not respected | 2 | 10.5 | 66 | 2.0 | 33 | |
| Expenditure not covered by legal base | 2 | 10.5 | 1,734 | 53.7 | 867 | |
| Falsified documents | 7 | 36.8 | 241 | 7.5 | 34 | |
| Inappropriate accumulation of aid | 1 | 5.3 | 398 | 12.3 | 398 | |
| Missing Documents | 1 | 5.3 | 27 | 0.8 | 27 | |
| Not Applicable | 2 | 10.5 | 396 | 12.3 | 198 | |
| Public procurement procedures not respected | 1 | 5.3 | 102 | 3.2 | 102 | |
| Total of Suspected fraud | 19 | 100 | 3,229 | 100 | 170 | |
| Total | 932 | 34,675 | 37 |
Among the recoveries qualified as irregularities ‘Action not in accordance with the rules’ was the most frequent identified category (211 recoveries or 23.1%). The next category was ‘Missing documents (187 recoveries or 20.5%). The four most frequent categories account for 68.9% of the recoveries qualified as irregularity, which shows a big variety in modus operandi used in irregular transactions. It should be observed that the share of these categories is lower (56%) if the amounts involved in the recovery are taken into account.
Among the recoveries qualified as suspected fraud, ‘Falsified documents’ was the most frequent type of irregularity (7 recoveries or 37%). However, the amounts involved in the recovery show a different pattern: the 2 cases where the type of irregularity was ‘Expenditure not covered by legal base’ account for 54% of the amounts, whereas the category ‘Falsified documents’ only accounted for 7.5%.
7.3.Specific analysis
7.3.1.Irregularity versus Suspected Fraud
Only 2 % of the 932 issued recovery orders were qualified by the Commission services as suspected fraud, but they account for 9.3% of the amounts involved in the recoveries. Table DE10 provides an overview of these findings.
Table DE 10: Recoveries (number and amounts) by qualification
| Qualification | N | % | Commit-ments (€ 1 000) | % | Average € 1,000 | Irregular amount (€ 1 000) | % | Average € 1,000 |
| Irregularity | 913 | 98.0 | 546,784 | 94.3 | 598 | 31,447 | 90.7 | 34.4 |
| Suspected fraud | 19 | 2.0 | 33,254 | 5.7 | 1,750 | 3,229 | 9.3 | 169.9 |
| Total | 932 | 100.0 | 580,038 | 100.0 | 622 | 34,676 | 100.0 | 37.2 |
The average irregular amount per recovery was almost 5 times higher in suspected fraud recoveries than in recoveries qualified as irregularity. The average for all recoveries qualified as irregularity was EUR 34,444 compared to EUR 169,947 for recoveries qualified as suspected fraud. It should be noted that the financial impact of suspected fraud cases could be revised following OLAF's investigations.
7.3.2.Time delay
The average delay between the commitment and the issuing of a recovery order is 4 years and 8 months. Taking account of the applicable procedures from the moment of commitment through payments, controls till issuing the recovery order, the procedure is rather fast. For recovery orders in direct expenditures issued in 2008 most commitments were made in 2004 and 2006 (see graph DE1). In both years, more than 150 commitments were made for which a recovery order was issued in 2008. Almost 90% of recovery orders by number concerned commitments which were made between 2000 and 2006. Recovery orders by amounts for the same period account for almost 85% of the amounts to be recovered.
Taking account of the amounts involved and by applying the weighted average of the time delay, it can be expected that the average time between the commitment and the issuing of a recovery order will increase to 5 years and 6 months. This shows that it takes longer to issue a recovery order in cases involving higher amounts, especially in the projects in which the total amount of contract has to be recovered.
The chart below presents the recoveries registered in 2008 by number (blue line) and amounts (magenta bars) of commitments by year of the commitment was made (e.g.: in 2008, 150 recoveries were registered in ABAC that were made in 2006. The amount to be recovered is more than EUR 5 million).
Chart DE 1: Recoveries (number and amounts) by year of commitment
7.4.Recovery
This paragraph describes the payments made to the Commission further to the issuing of the recovery orders. Once a recovery order is issued, the beneficiary has to pay back the undue payment. For the recovery orders issued in 2008, full or partial payment could be reported in 679 (72%) cases, which represents an amount of almost EUR 22 million (65%). 262 recovery orders (28%) were not paid yet, which account for almost EUR 13 million (35%).
Table DE 11: Recoveries (number and amount) by payment status and qualification.
| Qualification | Recovered111 | To be Recovered | ||
| Number | Cashed Amount (€ 1 000) | Number | Open Amount (€ 1 000) | |
| Irregularity | 665 | 21,387 | 256 | 10,349 |
| Suspected fraud | 14 | 599 | 6 | 2,631 |
| Total | 679 | 21,986 | 262 | 12,980 |
The recovery rate for all recoveries is 63.4% and is higher for irregularities (68%) than for suspected fraud (18.6%). However it is important to note that the Commission recovered the full amount of 13 contracts out of 19 cases involving suspected fraud. In 6 cases, the full amount still needs to be recovered. Five out of these six cases account for 81.9% of the amounts to be recovered in suspected fraud cases.
7.5.Conclusions
This analysis was the first attempt to examine the data from the recovery context of ABAC. As already mentioned in the methodology paragraph of the chapter, the findings should be treated carefully as this is only the first year that a limited set of data was available. The findings should not be considered as empirical evidence of the level of fraud and irregularity. Taking account of these constraints and limitations, the following cautious conclusions can be drawn.
- Irregular amounts only represent 6% of the commitments for which recovery orders were issued;
- Almost 90% of the recoveries relate to commitments made for internal policies, but relative share for external actions for both the number and the amounts to be recovered is substantially higher;
- The method of detection most frequently identified in recoveries qualified as irregularity (both number and amounts) is ‘Community control’, in particular by carrying out ‘Desk check of documents’. It was only in a few recoveries that desk controls led to a ‘suspected fraud qualification’, which could imply that the design of these controls could be optimized to enhance the possibility of suspected fraud detection;
- The type of irregularity showed a large variance. In recoveries qualified as irregularity, ‘Action not in accordance with the rules’ and ‘Missing documents’ were the most frequent categories, whereas the type of irregularity most frequently observed in recoveries qualified as suspected fraud was ‘Falsified documents’’
- The aggregated amount of recovery orders issued for commitments made in the area of internal policies was four times higher than for commitments made in the external actions domain. The latter however seems to be more exposed to the occurrence of suspected fraud;
- 63.4% of the debit notes issued in 2008 was paid.
ANNEXES
ANNEX 1 – NUMBER OF CASES OWNRES AND AMOUNTS – PERIOD 2004-2007 PER MEMBER STATE
| Number of OWNRES cases and amounts for the period 2005-2008 by Member State | ||||||||||
| Member State | 2005 | 2006 | 2007 | 2008 | % Change cases 2007- 2008 | % Change amount 2007-2008 | ||||
| Cases | Amount € | Cases | Amount € | Cases | Amount € | Cases | Amount € | |||
| AT | 83 | 5 153 940 | 75 | 5 937 611 | 93 | 36 518 807 | 103 | 5 028 046 | 10.75% | -86.23% |
| BE | 669 | 9 072 828 | 428 | 12 007 783 | 449 | 22 238 675 | 317 | 12 670 490 | -29.40% | -43.02% |
| DE | 1 317 | 78 287 465 | 1 140 | 59 113 839 | 1558 | 77 337 728 | 1218 | 65 894 342 | -21.82% | -14.80% |
| DK | 64 | 6 884 838 | 67 | 6 068 078 | 54 | 7 208 999 | 44 | 3 963 276 | -18.52% | -45.02% |
| ES | 501 | 48 911 216 | 632 | 32 093 701 | 439 | 18 140 369 | 438 | 19 019 835 | -0.23% | 4.85% |
| FI | 34 | 1 992 413 | 28 | 1 464 957 | 34 | 1 764 959 | 21 | 708 003 | -38.24% | -59.89% |
| FR | 349 | 33 837 541 | 314 | 29 109 870 | 327 | 32 981 593 | 311 | 17 548 870 | -4.89% | -46.79% |
| GR | 55 | 8 366 740 | 48 | 11 697 070 | 57 | 2 976 051 | 32 | 1 444 289 | -43.86% | -51.47% |
| IE | 22 | 671 846 | 48 | 2 864 369 | 35 | 2 482 972 | 43 | 1 645 639 | 22.86% | -33.72% |
| IT | 298 | 31 845 317 | 341 | 65 602 399 | 276 | 23 582 174 | 310 | 31 320 103 | 12.32% | 32.81% |
| LU | 0 | 0 | 1 | 49 291 | 0 | 0 | 1 | 263 046 | N/A | N/A |
| NL | 1 794 | 29 912 777 | 1 406 | 37 346 132 | 1145 | 30 051 013 | 870 | 54 597 249 | -24.02% | 81.68% |
| PT | 20 | 1 652 095 | 17 | 780 560 | 23 | 1 635 142 | 25 | 2 186 424 | 8.70% | 33.71% |
| SE | 60 | 3 250 999 | 47 | 2 164 111 | 43 | 2 318 935 | 70 | 6 331 784 | 62.79% | 173.05% |
| UK | 698 | 59 105 121 | 1 057 | 65 054 126 | 1072 | 112 872 035 | 1023 | 98 362 245 | -4.57% | -12.86% |
| EUR-15 TOTAL | 5 964 | 318 945 136 | 5 649 | 331 353 897 | 5 605 | 372 109 452 | 4 826 | 320 983 641 | -13.90% | -13.74% |
| CY | 16 | 379 977 | 9 | 192 160 | 11 | 750 964 | 14 | 787 523 | 27.27% | 4.87% |
| CZ | 19 | 531 275 | 63 | 2 302 704 | 50 | 2 290 130 | 64 | 5 025 048 | 28.00% | 119.42% |
| EE | 3 | 165 287 | 5 | 178 010 | 12 | 423 140 | 17 | 1 358 643 | 41.67% | 221.09% |
| HU | 70 | 1 986 224 | 103 | 7 805 235 | 69 | 6 265 722 | 64 | 5 852 076 | -7.25% | -6.60% |
| LT | 35 | 1 515 325 | 39 | 1 599 918 | 41 | 1 283 365 | 57 | 1 544 550 | 39.02% | 20.35% |
| LV | 10 | 544 854 | 28 | 1 886 378 | 40 | 2 253 690 | 25 | 944 415 | -37.50% | -58.09% |
| MT | 6 | 882 756 | 11 | 1 226 978 | 10 | 404 949 | 3 | 449 940 | -70.00% | 11.11% |
| PL | 55 | 1 218 001 | 69 | 1 808 507 | 159 | 8 492 588 | 142 | 5 609 503 | -10.69% | -33.95% |
| SI | 22 | 618 272 | 24 | 950 848 | 27 | 1 579 108 | 26 | 915 631 | -3.70% | -42.02% |
| SK | 4 | 75 841 | 28 | 1 561 967 | 21 | 1 236 418 | 12 | 469 810 | -42.86% | -62.00% |
| EUR-10 TOTAL | 240 | 7 917 812 | 379 | 19 512 705 | 440 | 24 980 074 | 424 | 22 957 139 | -3.64% | -8.10% |
| BG | 0 | 0 | 0 | 0 | 15 | 456 726 | 19 | 502 373 | 26.67% | 9.99% |
| RO | 0 | 0 | 0 | 0 | 37 | 3 785 318 | 75 | 7 175 419 | 102.70% | 89.56% |
| EUR-2 TOTAL | 0 | 0 | 0 | 0 | 52 | 4 242 044 | 94 | 7 677 792 | 80.77% | 80.99% |
| EUR-27 TOTAL | 6 204 | 326 862 948 | 6 028 | 350 866 602 | 6 097 | 401 331 570 | 5 344 | 351 618 572 | -12.35% | -12.39% |
ANNEX 2 – OWNRES CASES PER MEMBER STATE
ANNEX 3 – IMPACT ON CUSTOM PROCEDURE FREE CIRCULATION
| IMPACT ON CUSTOMS PROCEDURE FREE CIRCULATION | ||||
| YEAR | CASES | IMPACT CASES % OF TOTAL | AMOUNTS ESTABLISHED | IMPACT AMOUNTS ESTABLISHED % OF TOTAL |
| 2004 | 2256 | 65.01% | 172 902 304 | 82.20% |
| 2005 | 3306 | 53.29% | 263 805 274 | 80.71% |
| 2006 | 3860 | 64.03% | 265 767 226 | 75.75% |
| 2007 | 3947 | 64.74% | 327 029 733 | 81.49% |
| 2008 | 3601 | 67.38% | 271 199 284 | 77.13% |
ANNEX 4 – TOP 10 CHAPTER HEADINGS
| TOP 10 CHAPTER HEADINGS | |||||||||||||
| 2006 | 2007 | 2008 | |||||||||||
| CN | PRODUCT | AMOUNT € | CASES | CN | PRODUCT | AMOUNT € | CASES | CN | PRODUCT | AMOUNT € | CASES | ||
| 85 | TVs and parts etc. | 63 260 655 | 1 048 | 85 | TVs and parts etc. | 86 667 729 | 1 062 | 85 | TVs and parts etc. | 90 487 554 | 809 | ||
| 24 | Tobacco/cigarettes | 43 590 444 | 514 | 64 | Footwear | 48 323 370 | 282 | 24 | Tobacco/cigarettes | 28 701 676 | 344 | ||
| 15 | Oils and fats | 22 403 986 | 86 | 24 | Tobacco/cigarettes | 29 872 956 | 367 | 84 | Machines | 23 351 047 | 367 | ||
| 61 | Clothing | 19 965 746 | 233 | 87 | (Parts of) cars/motors | 22 374 405 | 335 | 61 | Clothing | 22 098 382 | 395 | ||
| 10 | Cereals | 15 022 561 | 48 | 07 | Edible vegetables | 21 673 533 | 91 | 62 | Clothing | 19 638 499 | 437 | ||
| 02 | Meat | 14 324 372 | 332 | 84 | Machines | 18 135 581 | 386 | 87 | (Parts of) cars/motors | 15 873 280 | 338 | ||
| 07 | Edible vegetables | 13 883 909 | 122 | 61 | Clothing | 17 609 486 | 381 | 64 | Footwear | 10 188 686 | 233 | ||
| 73 | Articles of iron & steel | 13 222 296 | 130 | 62 | Clothing | 15 304 036 | 445 | 39 | Plastics | 10 179 568 | 214 | ||
| 87 | (Parts of) cars/motors | 11 698 920 | 316 | 63 | Other textile articles | 10 420 845 | 79 | 02 | Meat | 10 091 686 | 122 | ||
| 17 | Sugar/sugar products | 11 542 566 | 88 | 73 | Articles of iron & steel | 8 990 712 | 184 | 07 | Edible vegetables | 9 772 650 | 154 |
ANNEX 5 – GOOD AFFECTED BY FRAUD AND IRREGULARITY – PERIOD 2005-2007
ANNEX 6 – FRAUD AND IRREGULARITIES: BREAKDOWN BY ORIGIN OF GOODS
| FRAUD AND IRREGULARITY: BREAKDOWN BY ORIGIN OF GOODS DURING 2006-2008 | ||||||||||
| 2006 | 2007 | 2008 | ||||||||
| COUNTRY | Amount € | CASES | COUNTRY | Amount € | CASES | COUNTRY | Amount € | CASES | ||
| China | 90 328 190 | 1 516 | China | 169 495 156 | 1 718 | China | 133 997 371 | 1 659 | ||
| Japan | 31 347 676 | 297 | US | 44 250 023 | 780 | US | 40 397 999 | 620 | ||
| US | 28 921 543 | 688 | Japan | 26 484 283 | 270 | Japan | 18 798 783 | 220 | ||
| Thailand | 19 311 907 | 66 | South Korea | 16 965 037 | 168 | Not specified | 17 764 405 | 584 | ||
| Not specified | 18 218 201 | 798 | Brazil | 12 361 567 | 267 | Bangladesh | 14 020 461 | 181 | ||
| Brazil | 15 048 789 | 354 | Taiwan | 12 291 037 | 135 | South Korea | 13 256 416 | 97 | ||
| Tunisia | 14 126 527 | 47 | Vietnam | 9 154 388 | 61 | Brazil | 12 656 134 | 147 | ||
| South Korea | 12 093 869 | 151 | Bangladesh | 8 900 154 | 183 | Switzerland | 8 509 712 | 77 | ||
| Turkey | 10 644 686 | 101 | Not specified | 7 159 143 | 684 | Malaysia | 6 963 168 | 55 |
ANNEX 6.1: RECOVERY RATE (RR) BREAKDOWN BY ORIGIN OF GOODS 2006-2008
| RECOVERY RATE (RR) BREAKDOWN BY ORIGIN OF GOODS 2006-2008 | ||||||||||
| 2006 | 2007 | 2008 | ||||||||
| COUNTRY | Recovered € | RR | COUNTRY | Recovered € | RR | COUNTRY | Recovered € | RR | ||
| China | 42 690 405 | 47% | China | 65 851 360 | 39% | China | 39 766 265 | 30% | ||
| Japan | 13 022 284 | 42% | US | 34 009 628 | 77% | US | 20 307 596 | 50% | ||
| US | 22 863 972 | 79% | Japan | 21 518 197 | 81% | Japan | 16 326 518 | 87% | ||
| Thailand | 1 852 386 | 10% | South Korea | 6 972 683 | 41% | Not specified | 2 073 402 | 12% | ||
| Not specified | 5 851 802 | 32% | Brazil | 6 717 519 | 54% | Bangladesh | 5 380 711 | 38% | ||
| Brazil | 6 004 188 | 40% | Taiwan | 3 828 968 | 31% | South Korea | 8 037 874 | 61% | ||
| Tunisia | 440 582 | 3% | Vietnam | 7 839 416 | 86% | Brazil | 4 647 418 | 37% | ||
| South Korea | 10 017 939 | 83% | Bangladesh | 4 493 917 | 50% | Switzerland | 1 012 284 | 12% | ||
| Turkey | 1 703 544 | 16% | Not specified | 4 515 313 | 63% | Malaysia | 1 596 236 | 23% |
ANNEX 7 – RECOVERY RATES OWNRES
| RECOVERY RATES (RR) TRADITIONAL OWN RESOURCES | |||||||||
| MEMBER STATE | 2007 | 2008 | |||||||
| AMOUNT € 2007 | RECOVERED € 2007 | RR 2007 | AMOUNT € IN 2008 | RECOVERED € IN 2008 | RR for 2007 in 2008 | AMOUNT € 2008 | RECOVERED € 2008 | RR 2008 | |
| AT | 5 500 312 € | 1 600 436 € | 29.10% | 36 518 807 € | 1 956 817 € | 5.36% | 5 028 046 € | 1 678 042 € | 33.37% |
| BE | 22 307 864 € | 1 415 487 € | 6.35% | 22 238 675 € | 5 210 766 € | 23.43% | 12 670 490 € | 2 216 020 € | 17.49% |
| BG | 471 173 € | 236 994 € | 50.30% | 456 726 € | 253 003 € | 55.39% | 502 373 € | 289 569 € | 57.64% |
| CY | 750 402 € | 59 090 € | 7.87% | 750 964 € | 434 503 € | 57.86% | 787 523 € | 134 134 € | 17.03% |
| CZ | 1 424 688 € | 1 080 783 € | 75.86% | 2 290 130 € | 1 539 161 € | 67.21% | 5 025 048 € | 1 292 086 € | 25.71% |
| DE | 54 472 872 € | 39 064 385 € | 71.71% | 77 337 728 € | 57 543 376 € | 74.41% | 65 894 342 € | 40 753 580 € | 61.85% |
| DK | 7 256 158 € | 6 334 705 € | 87.30% | 7 208 999 € | 6 384 112 € | 88.56% | 3 963 276 € | 3 295 562 € | 83.15% |
| EE | 455 754 € | 231 635 € | 50.82% | 423 140 € | 231 662 € | 54.75% | 1 358 643 € | 411 651 € | 30.30% |
| ES | 12 925 302 € | 9 378 359 € | 72.56% | 18 140 369 € | 13 091 879 € | 72.17% | 19 019 835 € | 10 662 361 € | 56.06% |
| FI | 1 714 218 € | 654 884 € | 38.20% | 1 764 959 € | 798 103 € | 45.22% | 708 003 € | 384 491 € | 54.31% |
| FR | 33 315 774 € | 11 487 611 € | 34.48% | 32 981 593 € | 13 046 898 € | 39.56% | 17 548 870 € | 11 235 749 € | 64.03% |
| GR | 2 744 851 € | 151 948 € | 5.54% | 2 976 051 € | 199 214 € | 6.69% | 1 444 289 € | 387 361 € | 26.82% |
| HU | 6 027 841 € | 1 283 280 € | 21.29% | 6 265 722 € | 1 606 699 € | 25.64% | 5 852 076 € | 2 988 620 € | 51.07% |
| IE | 2 482 972 € | 1 987 124 € | 80.03% | 2 482 972 € | 1 987 124 € | 80.03% | 1 645 639 € | 1 544 260 € | 93.84% |
| IT | 31 048 300 € | 3 528 907 € | 11.37% | 23 582 174 € | 5 068 369 € | 21.49% | 31 320 103 € | 2 812 556 € | 8.98% |
| LT | 1 286 472 € | 408 342 € | 31.74% | 1 283 365 € | 650 144 € | 50.66% | 1 544 550 € | 688 732 € | 44.59% |
| LU | 0 € | 0 € | N/A | 0 € | 0 € | 0.00% | 263 046 € | 0 € | N/A |
| LV | 2 254 487 € | 874 726 € | 38.80% | 2 253 690 € | 1 103 122 € | 48.95% | 944 415 € | 73 706 € | 7.80% |
| MT | 404 949 € | 156 232 € | 38.58% | 404 949 € | 199 936 € | 49.37% | 449 940 € | 20 319 € | 4.52% |
| NL | 57 072 423 € | 8 436 879 € | 14.78% | 30 051 013 € | 21 100 182 € | 70.21% | 54 597 249 € | 8 289 082 € | 15.18% |
| PL | 8 569 400 € | 2 430 412 € | 28.36% | 8 492 588 € | 2 624 790 € | 30.91% | 5 609 503 € | 1 832 197 € | 32.66% |
| PT | 393 960 € | 239 516 € | 60.80% | 1 635 142 € | 291 150 € | 17.81% | 2 186 424 € | 328 155 € | 15.01% |
| RO | 3 837 168 € | 393 829 € | 10.26% | 3 785 318 € | 411 598 € | 10.87% | 7 175 419 € | 5 516 513 € | 76.88% |
| SE | 2 398 254 € | 1 201 561 € | 50.10% | 2 318 935 € | 2 089 519 € | 90.11% | 6 331 784 € | 4 501 990 € | 71.10% |
| SI | 1 589 490 € | 1 299 872 € | 81.78% | 1 579 108 € | 1 356 182 € | 85.88% | 915 631 € | 613 472 € | 67.00% |
| SK | 1 070 723 € | 300 113 € | 28.03% | 1 236 418 € | 475 687 € | 38.47% | 469 810 € | 236 534 € | 50.35% |
| UK | 115 284 887 € | 56 252 454 € | 48.79% | 112 872 035 € | 59 673 336 € | 52.87% | 98 362 245 € | 29 851 886 € | 30.35% |
| EUR-27 TOTAL | 377 060 694 € | 150 489 564 € | 39.91% | 401 331 570 € | 199 327 332 € | 49.67% | 351 618 572 € | 132 038 628 € | 37.55% |
ANNEX 8 – SEIZED AND CONFISCATED GOODS
| SEIZED AND CONFISCATED GOODS (cigarettes CN 24022090) | ||||||
| MEMBER STATES | 2006 | 2007 | 2008 | |||
| CASES | ESTIMATED OR ESTABLISHED AMOUNT € | CASES | ESTIMATED OR ESTABLISHED AMOUNT € | CASES | ESTIMATED OR ESTABLISHED AMOUNT € | |
| AT | 4 | 97 191 € | 2 | 89 954 € | 2 | 48 255 € |
| BE | 16 | 876 349 € | 6 | 365 914 € | 1 | 200 390 € |
| DE | 13 | 511 777 € | 2 | 171 448 € | 3 | 231 311 € |
| DK | 3 | 78 122 € | 0 | 0 € | 0 | 0 € |
| ES | 0 | 0 € | 0 | 0 € | 0 | 0 € |
| FI | 7 | 223 516 € | 8 | 139 145 € | 7 | 257 448 € |
| FR | 26 | 1 264 583 € | 29 | 1 679 953 € | 33 | 2 304 549 € |
| GR | 15 | 3 214 309 € | 13 | 2 072 640 € | 9 | 971 125 € |
| IE | 3 | 216 059 € | 5 | 803 923 € | 13 | 2 540 368 € |
| IT | 0 | 0 € | 4 | 345 467 € | 13 | 1 694 276 € |
| LU | 0 | 0 € | 0 | 0 € | 0 | 0 € |
| NL | 0 | 0 € | 0 | 0 € | 0 | 0 € |
| PT | 1 | 691 200 € | 0 | 0 € | 0 | 0 € |
| SE | 3 | 48 760 € | 3 | 385 600 € | 3 | 116 014 € |
| UK | 163 | 10 266 215 € | 42 | 4 345 939 € | 100 | 9 789 560 € |
| EUR-15 TOTAL | 254 | 17 488 081 € | 114 | 10 399 983 € | 184 | 18 153 296 € |
| BG | 0 | 0 € | 0 | 0 € | 2 | 52 543 € |
| CY | 2 | 364 685 € | 1 | 33 673 € | 0 | 0 € |
| CZ | 0 | 0 € | 0 | 0 € | 1 | 219 219 € |
| EE | 0 | 0 € | 1 | 41 304 € | 0 | 0 € |
| HU | 15 | 515 938 € | 6 | 193 168 € | 4 | 860 456 € |
| LT | 5 | 109 526 € | 0 | 0 € | 3 | 78 624 € |
| LV | 2 | 490 904 € | 4 | 693 930 € | 4 | 365 572 € |
| MT | 7 | 780 914 € | 2 | 205 013 € | 0 | 0 € |
| PL | 17 | 404 267 € | 34 | 813 987 € | 37 | 1 193 988 € |
| RO | 0 | 0 € | 19 | 3 219 905 € | 16 | 1 134 311 € |
| SI | 9 | 549 900 € | 6 | 187 055 € | 4 | 261 035 € |
| SK | 3 | 397 874 € | 1 | 144 760 € | 0 | 0 € |
| EUR-12 TOTAL | 60 | 3 614 008 € | 74 | 5 532 795 € | 71 | 4 165 748 € |
| EUR-27 TOTAL | 314 | 21 102 089 € | 188 | 15 932 778 € | 255 | 22 319 044 € |
ANNEX 9 – PERCENTAGE CLASSIFICATION OF FRAUD PER MEMBER STATE
ANNEX 10 – AMOUNTS INVOLVED IN FRAUD
| AMOUNTS INVOLVED IN FRAUD PERIOD 2006-2008 | |||||||||||
| MEMBER STATE | 2006 | 2007 | 2008 | ||||||||
| CASES | FRAUD CASES | FRAUD IN € | CASES | FRAUD CASES | FRAUD IN € | CASES | FRAUD CASES | FRAUD IN € | |||
| AT | 75 | 25 | 2 250 974 | 93 | 31 | 34 103 931 | 103 | 25 | 1 652 584 | ||
| BE | 428 | 54 | 3 598 030 | 449 | 54 | 2 286 375 | 317 | 37 | 2 371 821 | ||
| DE | 1 140 | 154 | 13 737 742 | 1 558 | 213 | 16 222 344 | 1 218 | 150 | 13 327 586 | ||
| DK | 67 | 15 | 3 359 960 | 54 | 2 | 213 813 | 44 | 6 | 670 840 | ||
| ES | 632 | 249 | 21 659 342 | 439 | 172 | 7 997 274 | 438 | 188 | 11 106 390 | ||
| FI | 28 | 24 | 1 267 261 | 34 | 21 | 1 151 960 | 21 | 11 | 323 853 | ||
| FR | 314 | 32 | 119 450 | 327 | 153 | 6 294 666 | 311 | 123 | 4 447 123 | ||
| GR | 48 | 48 | 11 697 070 | 57 | 57 | 2 976 051 | 32 | 32 | 1 444 289 | ||
| IE | 48 | 0 | 0 | 35 | 4 | 134 805 | 43 | 13 | 0 | ||
| IT | 341 | 205 | 57 562 427 | 276 | 101 | 11 918 739 | 310 | 170 | 18 037 668 | ||
| LU | 1 | 1 | 49 291 | 0 | 0 | 1 | 0 | 0 | |||
| NL | 1 406 | 441 | 34 203 951 | 1 145 | 341 | 23 429 524 | 870 | 69 | 2 361 909 | ||
| PT | 17 | 8 | 276 018 | 23 | 2 | 394 483 | 25 | 5 | 1 676 333 | ||
| SE | 47 | 3 | 0 | 43 | 3 | 0 | 70 | 3 | 0 | ||
| UK | 1 057 | 159 | 10 160 937 | 1 072 | 104 | 9 989 927 | 1 023 | 93 | 9 401 126 | ||
| EUR-15 | 5 649 | 1 418 | 159 942 453 | 5 605 | 1 258 | 117 113 892 | 4 826 | 925 | 66 821 522 | ||
| BG | 0 | 0 | 0 | 15 | 8 | 228 070 | 19 | 15 | 447 721 | ||
| CY | 9 | 3 | 21 855 | 11 | 3 | 26 456 | 14 | 3 | 378 947 | ||
| CZ | 63 | 5 | 91 486 | 50 | 3 | 649 307 | 64 | 4 | 79 553 | ||
| EE | 5 | 0 | 0 | 12 | 1 | 41 304 | 17 | 1 | 100 592 | ||
| HU | 103 | 59 | 4 499 751 | 69 | 16 | 2 511 001 | 64 | 26 | 2 448 405 | ||
| LT | 39 | 3 | 414 212 | 41 | 7 | 77 313 | 57 | 12 | 428 990 | ||
| LV | 28 | 1 | 130 892 | 40 | 0 | 0 | 25 | 0 | 0 | ||
| MT | 11 | 11 | 1 226 978 | 10 | 5 | 285 766 | 3 | 2 | 429 621 | ||
| PL | 69 | 19 | 404 267 | 159 | 68 | 5 972 136 | 142 | 50 | 1 948 060 | ||
| RO | 0 | 0 | 0 | 37 | 19 | 3 219 905 | 75 | 27 | 1 521 782 | ||
| SI | 24 | 11 | 579 346 | 27 | 6 | 187 055 | 26 | 5 | 277 754 | ||
| SK | 28 | 8 | 477 049 | 21 | 10 | 475 316 | 12 | 3 | 127 700 | ||
| EUR-12 | 379 | 120 | 7 845 836 | 492 | 146 | 13 673 629 | 518 | 148 | 8 189 125 | ||
| EUR-27 | 6 028 | 1 538 | 167 788 289 | 6 097 | 1 404 | 130 787 521 | 5 344 | 1 073 | 75 010 647 |
ANNEX 13
STRUCTURAL MEASURES (INCLUDE THE COHESION FUND)
IRREGULARITIES* COMMUNICATED BY MEMBER STATES 1998-2008**
*The concept of irregularity includes fraud. The qualification as fraud, meaning criminal behaviour, can only be made following a penal procedure.
** Data have been updated in relation to those published in the 2007 report in order to take into account the updates sent by Member States during the reporting year 2008.
ANNEX 14
COHESION FUND
IRREGULARITIES* COMMUNICATED BY MEMBER STATES 1998-2008
*The concept of irregularity includes fraud. The qualification as fraud, meaning criminal behaviour, can only be made following a penal procedure.
ANNEX 15
PART 1
STRUCTURAL FUNDS
REGULATIONS NN. 1681/94 AND 1828/2006
a) ARTICLE 3/28 COMMUNICATIONS BY MEMBER STATE - 2008
b) NUMBER OF IRREGULARITIES REPORTED BY MEMBER STATE - 2008
ANNEX 15
PART 2
STRUCTURAL FUNDS
IRREGULARITIES REPORTED BY MEMBER STATES - 2008
REGULATIONS NN. 1681/94 AND 1828/2006
FINANCIAL AMOUNTS INVOLVED IN IRREGULARITIES
ANNEX 16
STRUCTURAL FUNDS
IRREGULARITIES REPORTED BY MEMBER STATES
UNDER REGULATIONS NN. 1681/94 AND 1828/2006
SITUATION OF RECOVERY
PART 1 – 2008
a) AMOUNTS RECOVERED BY MEMBER STATES
b) AMOUNTS TO BE RECOVERED BY MEMBER STATES
NB: The sum of amounts recovered and amounts to be recovered does not equal the amounts affected by irregularity indicated in PART 2 of Annex 15. The difference between those values is constituted by amounts that have been suspended before payment.
ANNEX 16
STRUCTURAL FUNDS
IRREGULARITIES COMMUNICATED BY MEMBER STATES UNDER REGULATIONS NN. 1681/94 AND 1828/2006
SITUATION OF RECOVERY
PART 2 – AMOUNTS TO BE RECOVERED
* In justice: awaiting outcome of judicial procedures in national courts.
**Amounts irrecoverable: awaiting formal decision according to the procedure set out in art. 5§2 of Regulation No. 1681/94.
ANNEX 17
COHESION FUND
IRREGULARITIES COMMUNICATED BY MEMBER STATES UNDER REGULATION N. 1831/94
Annex 18
PRE-ACCESSION ASSISTANCE
IRREGULARITIES REPORTED IN 2008
Annex 19
PRE-ACCESSION ASSISTANCE
IRREGULARITIES REPORTED IN 2008
BELOW REPORTING THRESHOLD
Annex 20
PRE-ACCESSION ASSISTANCE
IRREGULARITIES REPORTED – 2002-2008
ANNEX 21
IRREGULARITIES COMMUNICATED BY MEMBER STATES AND CANDIDATE COUNTRIES
ANNEX 22
IRREGULARITIES REPORTED BY MEMBER STATES IN 2008 – AGRICULTURE, STRUCTURAL AND COHESION FUNDS, OWN RESOURCES
1Official Journal L 248 of 16.09.2002
2See in particular Article 3(1) of Council Regulation (EEC) No 595/91 of 4 March 1991 (OJ L 67, 14.3.1997), Commission Regulation (EC) No 1681/94 of 11 July 1994 (OJ L 178 of 12.7.1994), as amended by Regulation (EC) No 2035/2005 of 12 December 2005 (OJ L 328 of 15.12.2005), and No 1831/94 of 26 July 1994 (OJ L 191, 27.7.1994), as amended by Regulation (EC) No 2168/2005 of 23 December 2005 (OJ L 345 of 28.12.2005), for expenditure, and Article 6(5) of Council Regulation (EC, Euratom) No 1150/2000 for traditional own resources.
3As of 1st January 2007, also the threshold for the agriculture sector has been increased to €10,000 following the provisions contained in article 6(1) of Regulation (EC) 1848/2006 of 14 December 2006 (OJ L 355 of 15.12.2006).
4Regulation 1681/94 applies to the Structural Funds, that is to say European Regional Development Fund (ERDF), European Social Fund (ESF), European Agriculture Guidance and Guarantee Fund (EAGGF) – Section Guidance and Financial Instrument for Fishery Guidance (FIFG).
5Regulation 1831/94 applies to the Cohesion Fund.
6Regulation (EC) No 1080/2006 of the European Parliament and of the Council of 5 July 2006 on the European Regional Development Fund and repealing Regulation (EC) No 1783/1999; Regulation (EC) No 1081/2006 of the European Parliament and of the Council of 5 July 2006 on the European Social Fund and repealing Regulation (EC) No 1784/1999; Council Regulation (EC) No 1083/2006 of 11 July 2006 laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund and repealing Regulation (EC) No 1260/1999; Council Regulation (EC) No 1084/2006 of 11 July 2006 establishing a Cohesion Fund and repealing Regulation (EC) No 1164/94, OJ L 210, 31.7.2006.
7Commission Regulation (EC) No 1828/2006 of 8 December 2006 setting out rules for the implementation of Council Regulation (EC) No 1083/2006 laying down general provisions on the European Regional Development Fund, the European Social Fund and the Cohesion Fund and of Regulation (EC) No 1080/2006 of the European Parliament and of the Council on the European Regional Development Fund, OJ L 371, 27.12.2006. This repeals Regulations (EC) No 1681/94 and (EC) No 1831/94. Commission Regulation (EC) No 498/2007 of 26 March 2007 laying down detailed rules for the implementation of Council Regulation (EC) No 1198/2006 on the European Fisheries Fund.
8According to the definition provided for in Article 1 of the Convention on the protection of the Community’s financial interests of 26 July 1995 (OJ C No 316 of 27.11.1995), which entered into force on 17 October 2002, “[…] fraud affecting the European Communities' financial interests shall consist of:
a) in respect of expenditure, any intentional act or omission relating to:
- the use or presentation of false, incorrect or incomplete statements or documents, which has as its effect the misappropriation or wrongful retention of funds from the general budget of the European Communities or budgets managed by, or on behalf of, the European Communities;
- non-disclosure of information in violation of a specific obligation, with the same effect;
- the misapplication of such funds for purposes other than those for which they were originally granted;
b) in respect of revenue, any intentional act or omission relating to:
- the use or presentation of false, incorrect or incomplete statements or documents, which has as its effect the illegal diminution of the resources of the general budget of the European Communities or budgets managed by, or on behalf of, the European Communities;
- non-disclosure of information in violation of a specific obligation, with the same effect;
- misapplication of a legally obtained benefit, with the same effect.”
9The Commission opened a dialogue with the representatives of the Member States to clarify basic concepts and to re-assure Member States that the communication of irregularities in no way prejudices the outcome of criminal judicial proceedings. A working document on the practical modalities for the communication of irregularities was established. Discussions are continuing in the Advisory Committee on the Coordination of Fraud Prevention.
10These are mainly customs and agricultural duties.
11Regulation 1150/2000 of 22 May 2000.
12Regulation No 2028/2004, amending Regulation No 1150/2000.
13WOMIS: Write-Off Management and Information System.
14Origin of the cases: 1 case from Austria, 1 from Belgium, 1 from the Czech Republic, 341 from Germany, 13 from Denmark, 18 from Spain, 1 from Finland, 1 from Ireland, 66 from Italy, 108 from the Netherlands, 2 from Portugal, 4 from Sweden and 32 from the UK.
15The breakdown between the amounts for each of the positions is, at present, only an estimate because sometimes elements from the same case may be partly accepted, considered not suitable or refused. Additional information from the Member States (in particular on the proportion covered by guarantee) is then needed to provide the final classification and quantification of the amounts concerned.
16Case C-392/02 of 15 November 2005. These cases are identified on the basis of Articles 220(2)(b) (administrative errors not detectable by the operator) and 221(3) (time-barring resulting from Customs’ inactivity) of the Community Customs Code; Articles 869 and 889 of the Provisions for application of the Code; or on the basis of non-observance, by the customs administration, of articles of the Community Customs Code giving rise to legitimate expectations on the part of an operator.
17In such a situation there is no registration in OWNRES of the fraud or irregularity.
18OWNRES is an abbreviation for Own Resources.
19Items registered in OWNRES are not necessarily also in the B-account. Where a debt has been paid or not established (for instance where goods have been seized and confiscated) the amounts should not be entered in the B-account.
20The information generated by OWNRES used to produce the figures in this chapter was all obtained from queries made on 6 March 2009.
21See Annex 1 (table) and Annex 2 (chart).
22In 2005 the number of cases of belatedly discharged Transit was 2 374, being 38.3% of the total number of cases registered and 28% of the total amount initially established. In 2006 there were 1 478 cases (24.5% of cases and 19.5% of the total amount) and in 2007 there were 1 390 cases (22.8% of cases and 16.7% of the amount). In 2008 the figures are respectively 1 048, 19.6% and 14.7%.
23This percentage will gradually decrease since the cumulative number of existing cases in OWNRES will exceed the number of new cases added every new reporting year (last year this percentage was 16%).
24Significant changes in amounts involved generally relate to one or a few (very) big cases, e.g. Netherlands: 1 case of €15 million; Romania: 1 case of €2.8 million; Czech Republic: 1 case of €1.8 million.
25See Annex 3. In 2005 there was a decrease in importance of the customs procedure release for free circulation (53% of cases) which was linked to an improvement in registering those cases.
26Combined nomenclature or CN — nomenclature of the Common Customs Tariff.
27See Annexes 4 and 5.
28In 2007 MA 2007/015 was communicated signalling risks with textiles and shoes from China.
29The product description in the chart is a generic description of the goods involved. See Annexes 4 and 5 for detailed analyses.
30See Annex 6.
31See Annex 8. The numbers for this year differ significantly from last year’s report in an effort to correct for variations between Member States’ methods of registering these cases.
32See Annex 10.
33Cases involving seized and confiscated goods are registered as closed, even though OWNRES indicates that an amount is still to be recovered. This method of registration has been agreed for this particular situation.
34In paragraph 2.5.1. it is explained that OWNRES shows that corrections may be significant.
35This calculation is based on 51 412 cases, an established amount of €4 billion (after already processed corrections) and a recovered amount of €1.7 billion.
36See Annex 7.
37Closed cases, excluding cases of seized and confiscated goods (usually cigarettes) which are registered in OWNRES as closed cases with an amount to be recovered, but for which amount no recovery is required. This HRR rate should express the recovery result in complex and easy cases. Established and closed cases from 2006 onwards are excluded, because these are predominantly easy (complex cases generally cannot be closed within 3 years).
38This calculation is based on 24 748 cases (approximately 50% of all OWNRES cases currently registered), an established amount of €1.3 billion (after corrections) and a recovered amount of €1 billion.
39See Annex 10. For the delay in registration see the paragraph on reporting discipline.
40See Annex 6.1.
41Article 6(4) of Regulation 1150/2000 of 22 May 2000 as amended by Regulation 2028/2004 of 16 November 2004.
42Annual Accounts of the European Communities. Financial Year 2007. Consolidated Financial Statements and Consolidated Reports on Implementation of the Budget (OJ C 287,10.11.2008, p. 1). The percentage is based on the average of the years 2006-2008, also using the provisional figures for 2008.
43In paragraph 2.1.2. the procedure for managing Member States’ requests for write-off is explained in detail. TOR must be deemed irrecoverable by a Member State at the latest five years from the date, on which the amount was established, or in the event of an administrative or judicial appeal, the final decision was given, or the last part-payment of an established amount was made, whichever is the later.
44The five-year deadline for sending in such cases — introduced in 2004 — expires in 2009
45The period 1989-2006 is selected because write-offs for very recent establishments are not common and thus not a representative reference.
46This figure has to be corrected by the backlog of old write-off cases which still have to be processed by Member States.
47E.g. for the year 2007 the maximum impact was initially €541 million. Corrections of over €140 million changed it to €401 million at present;
48Not all Member States have access to AFIS/CCN-gateway and used MS Access version of Pre-IMS Module 1848. These Member States wait for the introduction of IMS;
49Member States reported in 2006 still 3,249 cases;
50Art. 10 Reg. 1848/2006: Without prejudice to Article 11, the Commission may use any information of a general or operational nature communicated by Member States in accordance with this Regulation to perform risk analyses, using information technology support, and may, on the basis of the information obtained, produce reports and develop systems serving to identify risks more effectively.
51Member States indicate in field 4.5. "Date of discovery (PACA)" of Module 1848 the so called PACA (Premier Acte de Constat Administratif). The PACA is the first written assessment of a competent authority, either administrative or judicial, concluding on the basis of actual facts that an irregularity has been committed, without prejudice to the possibility that this conclusion may subsequently have to be adjusted or withdrawn as a result of developments in the course of the administrative or judicial procedure;
52Sweden informed the Commission that the non-timely reporting was caused by a backlog. New recruited staff took care of the backlog;
53EAGF = European Agricultural Guarantee Fund;
54EAFRD = European Agricultural Fund for Rural Development;
55Bulgaria, Estonia, Greece, Hungary, Lithuania, the Netherlands and Slovakia;
56Art. 32(5) Reg. 1290/2005: If recovery has not taken place within four years of the primary administrative or judicial finding or within eight years where recovery action is taken in the national courts, 50 % of the financial consequences of non-recovery shall be borne by the Member State concerned and 50 % by the Community budget.
57Fraud level rate is based solely on the classification by Member States. Cases that have not been classified have not been taken into account. The average level of (suspected or established) fraud cases (7%) is calculated on the basis of the number of classified cases.
58Explanation for non-disclosure of personal data: tiedosta ei ole hyötyä sääntöjenvastaisuuden ehkäisyssä;
59Finland informed the Commission on 22 April 2009 that due to national (data protection) legislation no personal data can be submitted. Finland however, does report personal data for "structural funds"-cases (see table SF1: compliance rate of 100%);
60Explanation for non-disclosure of personal data: wird aus datenschutzrechtlichen Gründen nicht mitgeteilt;
61The number of reported cases for the years 2006, 2007 and 2008 was respectively 3,249, 1,577 and 1,133.
62Expenditure figures are based on CATS-database (download : 31 March 2009 (table 106))
63Text provided by DG AGRI
64Regulation (EC) No 1290/2005 (OJ L 209, 11.8.2005)
65Text provided by DG AGRI
66Decisions 2008/321/EC (OJ L 109, 19.4.2008), 2008/582/EC (OJ L 186, 15.7.2008, with corrigendum OJ L 194, 23.7.2008) and 2008/960/EC (OJ L 340, 19.12.2008).
67Reg. 485/2008 repealed Reg. 4045/1989
68Recommendations of the European Court of Auditors have led to revised pick lists;
69EAGF – rural development concerns the programming period 2000-2006 and the transitional instrument for new Member States (see table AG10);
70The analysis, text and table concerning recovery are provided by DG AGRI. Under Reg. 1848/2006 Member States are not required to indicate the amounts to recover to OLAF.
71Decision 2008/396/EC (OJ L 139, 29.5.2008)
72Decision 2009/87/EC (OJ L 31, 3.2.2009)
73Decision 2009/367/EC, (OJ L 111, 5.5.2009)
74Pre-IMS Module 1848, IMS Module 1848, access database 1848 or excel format 1848
75Information is based on the financial information transmitted by the Member States to DG AGRI in the context of Annex III of Reg. 885/2006
76OJ L120, 10.05.2007.
77For the programming period 2000-2006, the four Structural Funds are:
a. The European Regional Development Fund (ERDF), supporting primarily productive investment, infrastructure and development of SMEs;
b. The European Social Fund (ESF), supporting measures to promote employment (education systems, vocational training and recruitment aids);
c. The Guidance Section of the European Agricultural Guidance and Guarantee Fund (EAGGF-Guidance), supporting measures for the adjustment of agricultural structures and rural development;
d. The Financial Instrument for Fishery Guidance (FIFG), supporting measures for the adjustment of the fisheries sector and the ‘accompanying measures’ of the common fishery policy.
78For the programming period 2007-2013, the Structural Funds are:
a) the ERDF;
b) the ESF;
c) the European Fishery Fund (EFF - see chapter 4).
79Commission Regulations foresee four different types of communications:
a) initial communication: this is the communication with which a new irregularity is reported to the Commission services. The legal basis for these communications is contained in articles 3 of Regulations 1681/94 and 1831/94; article 28 of Commission Regulation 1828/2006;
b) update communication: with this type of communication, Member States update, integrate, modify the irregularities notified with the communication under a). The legal basis for this type of communications is contained in articles 5§1 of Regulations 1681/94 and 1831/94 and article 30§1 of Regulation 1828/2006;
c) urgent cases: this type of communication is (very seldom) used by Member States when they want to inform, without any delay, the Commission and other Member States of new malpractices that they have detected or about irregularities which may affect other Member States. The legal basis for this communications are articles 4 of Regulations 1681/94 and 1831/94 and article 29 of Regulation 1828/2006;
d) special report: more than a different type of communication this is a special report that may integrate some of the communications described under b). Where a Member State considers that an amount cannot be recovered or is not expected to be recovered, it shall inform the Commission, in a special report, of the amount not recovered and of the facts relevant to the decision on apportionment of the loss. The legal basis is contained in articles 5§2 of Regulations 1681/94 and 1831/94 and article 30§2 of Regulation 1828/2006.
80As amended by Regulation (EC) No 2035/2005.
81As amended by Regulation (EC) No 2168/2005.
82With the introduction of the new reporting system, the problem will be entirely solved, as the field will become compulsory.
83Number of irregularities and related irregular financial amounts may vary in relation to those published in the Statistical Annex to the 2007 Report. This is the result of updates received in 2008, which may have altered the implicated financial amounts or specified that, at the end of the relevant procedures, it was decided that a previously reported case did not constitute an irregularity.
84Figures may vary in relation to those published in the Statistical Annex to the 2007 Report. This is the result of updates received in 2008, which may have altered the implicated financial amounts or specified that, at the end of the relevant procedures, it was decided that a previously reported case did not constitute an irregularity.
85Both the irregular amounts and the average irregular amounts are to be considered only as indicative, in consideration of the fact that more than one typology of irregularity may be reported in the same communication of irregularity. This may lead to double or triple counting of the same communication in the column frequency and irregular amounts.
86The estimation method has remained basically the same, with some minor variations, following the lessons “learned” in analysing the cases directly classified by the Member States. This slightly “revised” method has been applied again to the entire database of reported irregularities for the years 2000-2007 in order to produce Chart SF15. The different method used explains the different values showed on that chart in comparison with similar charts appeared on the statistical annexes to the annual reports for the years 2005 and 2006.
87The descriptions provided by the Member States of the modus operandi linked to these communications of irregularity show that falsified documents, declarations of certificates were used. Under these circumstances, the Commission believes that those communications of irregularities should have been classified as “suspicion of fraud”.
88As data referred to the Cohesion fund are considered not entirely reliable for this type of estimation, they have been excluded from this chart. See also footnote 51 for more details about data showed on this chart.
89Three general objectives are foreseen for the programming period 2000-2006:
a. Objective 1: promote the development and structural adjustment of regions whose development is lagging behind;
b. Objective 2: supporting the economic and social conversion of areas experiencing structural difficulties;
c. Objective 3: supporting the adaptation and modernisation of education, training and employment policies and systems in regions not eligible under Objective 1.
Furthermore, through the Funds are also financed the so called “Community Initiatives” , aimed at intervening on specific aspects such as, for example, stimulating interregional cooperation (INTERREG); promoting the design and implementation of innovative models of development for the economic and social regeneration of troubled urban areas (URBAN).
90On 26 March 1999, at the Berlin European Council, the Heads of Government or States concluded a political agreement on Agenda 2000.
91ISPA programme dealt with large-scale environment and transport investment support in candidate countries.
92SAPARD programme has supported agricultural and rural development in candidate countries.
93PHARE programme applied to candidate countries, principally involving institution building measures (and associated investment) as well as measures designed to promote economic and social cohesion, including cross–border co–operation.
94Community Assistance for Reconstruction, Development and Stabilisation applied to Western Balkan countries
95Commission Decision PE/2006/148 of 07/02/2006 conferring management of aid provided under PHARE and CARDS to an Implementing Agency in Croatia
96Council Regulation (EC) No 1085/2006
97As amended by Regulation (EC) No 2035/2005
98Following the two months at the end of each quarter, Member states and Candidate Countries are obliged to report to the Commission any irregularities which have been the subject of initial administrative or judicial investigations.
99A maximum period of 5 months (3 months + 2 months) to report a detected irregularity is established by the Commission regulation 1681/1994.
100Croatia, Turkey, Bosnia-Herzegovina, Serbia (and Kosovo), and Montenegro.
101The term 'whistleblower' in this context is used in a broader sense than defined by the EU legislation and also involves anonymous sources.
102Article 3 of Commission Regulation (EC)1681/94
103Commission Regulation (EC) No 1681 Article 3, Par 1 (m)
104European Court of Auditors. Special Report No 12/2008 concerning the Instrument for Structural Policies for Pre-accession (ISPA), 2000-2006
10517 SAPARD cases are not included in this report because they were reported well after the deadline.
106In accordance with Article 53a of the Council Regulation (EC, Euratom) No 1605/2002 (‘Financial Regulation’) and Commission Regulation (EC, Euratom) No 2342/2002 (‘Implementing Rules’), see also chapter XX.
107The financial impact of a case of suspected fraud can only be determined following the conclusion of an OLAF investigation. It is only at the end of judicial proceedings (‘res judicata’) that a case can be qualified as fraud and that the actual amount of fraud can be established.
108Information on the number of commitments that were not subject to a recovery order is not available as the recovery orders are related to commitments made under several budget exercises.
109ACP: Africa, Caribbean and Pacific countries;
110Countries benefiting from the European Neighbourhood Policies and the Pre-Accession Assistance
111The totals in this table exceed the total number of recoveries and recovered amounts as some partial recoveries fall into both ‘recovered’ and ‘to be recovered’.
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