Voorstel EC: nieuw instituut tegen fraude (en)

European Commission

MEMO

Brussels, 24 July 2013

Questions and Answers: The protection of EU financial interests and the fight against fraud

See also IP/13/731

What is the purpose of the Annual Report on the Protection of the EU's Financial Interests?

Member States have to adopt all necessary measures to protect the EU budget, and to counter fraud and any other illegal activities affecting the financial interests of the EU. They are obliged to report all irregularities - both fraudulent and non-fraudulent - to the Commission which then compiles the information on this annual report, which is provided for in the Treaty (Article 325).

The report is presented to the European Parliament and the Council to inform them of measures adopted, as well as the results achieved, at EU and national level to combat activities negatively impacting EU financial interests.

In this respect, the report is part of the Commission's policy of transparency for financial management. Importantly, it also helps to identify areas where the protection of EU funds can be reinforced.

How does the European Commission compile this annual report?

This report is compiled mainly using data and information submitted by the Member States, given that they are first in line for managing and controlling 80% of EU expenditure. The remaining part of the information comes from data collected by the Commission itself. There are two ways in which the information is communicated to the Commission. Firstly, Member States report irregularities and suspected fraud which they have detected in areas of shared management. Statistics in the report are compiled on the basis of this data. Secondly, Member States contribute to the report via an annual questionnaire addressed to them by the Commission. The topics of these questionnaires are chosen with a view to gathering more information on areas that could help improve the protection of EU financial interests. For 2012, the chosen topic is the controls to combat fraud and irregularities in the area of agriculture.

What are the EU financial interests?

EU financial interests include revenues, expenditures and assets covered by the budget of the European Union and those covered by the budgets of the institutions, bodies, offices and agencies and the budgets managed and monitored by them.

The revenue side of the budget is made up of customs duties, value added tax and a share of the gross national income of EU countries. For 2012, the EU budget amounted to EUR 129.1 billion, i.e. about 1% of the EU-27 Gross National Income (GNI).

Through these resources the EU finances its policies, which are divided as follows: 46% goes to support sustainable growth (research and innovation, employment and regional development programmes); 41% to the preservation and management of natural resources (agricultural expenditure and direct aids to farmers, rural development, fisheries and environment); 1.4% to citizenship, freedom, security and justice (strengthening of active citizenship, immigration, fighting of terrorism and crime, …); 6.4% to the EU as a Global player (Common foreign and security policy; EU neighbourhood policy; pre-accession assistance, humanitarian aid and development cooperation); 5.6% to administrative expenditure (running costs for the EU institutions).

How is the EU budget implemented?

The Commission is responsible for implementing the EU budget. However, almost 80% of the total expenditure (e.g. agriculture, fisheries, regional and social policies) is managed by Member State authorities under "shared management". This means that it is a decentralised system, with the first level controls and checks carried out by the national authorities. Member States are also responsible for recovering any money which has been subject to irregularity or fraud from the beneficiaries. Checks at various levels (project level, national and EU) aim to ensure the taxpayers' money is protected.

What is the difference between "irregularity" and "fraud"?

An irregularity is when a beneficiary does not comply with the EU rules and requirements linked to the spending of EU funds, with a potentially negative impact on EU financial interests. Irregularities are often the result of genuine errors e.g. not filling out a form correctly, or not respecting the proper tendering procedure. Fraud is a deliberately committed irregularity constituting a criminal offence. When reporting an irregularity to the Commission, Member States must indicate whether any fraud is suspected or established in each case. In the PIF report, suspected or established fraud are referred to as "irregularities reported as fraudulent".

How did fraud affecting the EU budget in 2012 change in comparison with the previous year?

In 201 2, on the expenditure side, the overall amount of EU funds affected by fraud increased by €20 million compared to 2011. This was almost entirely due to 2 large-scale cases of fraud in pre-accession funds ¹ . There was also a small increase (€0.5 million) in the amounts affected by fraud in direct expenditure.

By contrast, the financial impact of fraud declined compared to the previous year in agriculture by €8 million, and in cohesion policy by €4 million. In agriculture, there were more cases of fraud, mostly due to a specific investigation in one Member State, but overall the financial impact was still less than in 2011.

On the revenue side, the financial impact of fraud decreased by about €30 million.

What was the impact of non-fraudulent irregularities (i.e. errors) to the EU budget in 2012?

Non-fraudulent irregularities i ncreased in both numbers and amounts (which doubled in relation to 2011). In 2012, these irregularities in the spending of EU funds amounted to €2.6 million and are mainly linked to cohesion policy and rural development programmes. Reasons for this increase vary from sector to sector. However, generally it is due to irregularities reported on request of the Commission and still related to the closure of the previous programming period (2000-06) and to the fact that the current programming period (2007-13) is now in its full implementation. As a result, the volume of payments, and the reporting requirements that apply to them, increased substantially in 2012 compared to previous years.

Does the number of reported fraud cases correspond to the level of fraud in a particular Member State?

No. The rate of fraud indicated per Member State corresponds to the amount of detected cases of suspected and established fraud reported by the national authorities. Therefore, a higher level of reported fraud is an indication that the anti-fraud systems in a particular Member State are working well, and that reporting obligations are being met. Conversely, the Commission has asked for more information from Member States that report a low number of fraud cases, and urges them to ensure that their reporting and control systems are of a high enough standard.

Do irregularities mean that money is lost or wasted?

No. When an irregularity is detected, the undue payments are taken back from the project or country at fault. In the area of shared management (cohesion, agriculture, pre-accession, etc…), the competent authorities in Member States are responsible for recovering the funds from the beneficiary and initiating any administrative or judicial follow up. In direct expenditure (centralised management), e.g. research, the Commission services take the administrative and financial follow-up action. The money recovered can therefore be returned to the EU budget or re-used to finance other regular projects.

What mechanisms are in place to guarantee that EU resources are managed in a sound way and that irregular amounts are duly recovered?

The procedure for financial correction varies depending on the type of funds concerned. In the area of shared management (agriculture, fisheries, cohesion policy etc) or in the sector of Traditional Own Resources, the recovery of unduly paid sums or evaded custom duties is the responsibility of Member State authorities. The Commission monitors to ensure that the undue amounts are effectively recovered.

Each sector, however, has specific rules concerning the financial mechanisms (corrections) through which the Commission ensures that EU financial interests are adequately safeguarded.

With regard to direct expenditure, the Commission has the exclusive responsibility to ensure the recovery of irregular amounts.

For shared management, the following procedures apply:

Agriculture: Member States are responsible for the prevention and correction of irregularities and the recovery of unduly paid amounts. The control chain, however, would not be complete without a mechanism ensuring that Member States duly carry out their work or, if they fail to do so, pay the necessary financial consequences. This mechanism consists of the clearance of accounts procedures operated by the Commission. In accordance with their national rules and procedures, Member States are obliged to recover sums lost as a result of irregularities. If they succeed in getting the money back from the beneficiaries, they have to credit the recovered sums to the funds. However, if the Member State takes more than four years for recovery, or eight years in the case of national court proceedings against the beneficiary, the Commission charges 50% of the outstanding sum to the Member State concerned, thereby protecting the financial interests of the EU (the so-called 50/50 rule). This is done via the financial clearance procedure. In all cases, the Commission monitors the Member States’ recovery actions. If a Member State does not pursue recovery or is not diligent in its actions, the Commission may impose a financial correction (of up to 100%) on the Member State concerned.

Cohesion policy: At the beginning of the programming period, the Commission provides an advance payment to the Member States from which they can start financing specific programs. The Commission makes further bi-annual payments to Member States on the basis of specific expenditure claims. Final payments are made at the closure of the programming period. Once an irregularity has been detected, Member States must make the appropriate financial correction. This means that the irregular expenditure is removed from the statement of expenditure, unduly paid EU contributions are thereby repaid to the Commission and the undue payment is recovered from the beneficiary. This recovery of undue payments is governed by national administrative and judicial rules.

Member States can decide whether to remove expenditure from the statement of expenditure immediately after the detection of an irregularity, or wait until the recovery procedure is completed. The Commission monitors that reported irregularities and expenditure claims are consistent.

Pre-Accession Assistance : The rules concerning recovery in Pre-Accession Assistance broadly follow the steps already described for the Cohesion Policy.

What preventive and corrective measures have been adopted by the Commission in 2012?

In 2012, the Commission implemented financial corrections and recoveries of around EUR 4.5 billion. Moreover, decisions of preventive measures (interruptions and suspensions of payments) were taken with regard to EUR 6.7 billion. These figures show the determination of the Commission to ensure that taxpayers' money is spent in an efficient and sound way.

Some 187 decisions to interrupt payments (involving over EUR 5 billion) were taken in the cohesion policy area. Of these, 70 were still open at the end of 2012 (involving about EUR 1.7 billion of interrupted payments). Also, four suspension decisions were taken (still ongoing at the end of the year).

What measures are in place to protect EU funds from fraud?

Under EU law, Member States have primary responsibility for preventing, detecting and following up on irregularities and fraud. They are responsible for collecting EU budget revenue (e.g. Traditional Own Resources) and for managing almost 80% of EU expenditure. To further protect against irregularities and fraudulent activities, the Commission checks whether the national administrative practices are in line with EU rules, and whether the Member States’ control systems are working properly. The Commission also controls whether all substantiating documents are provided and if they comply with EU requirements. In addition, the Commission may carry out on-the-spot checks and inspections to verify Member States' adherence to the rules.

Efforts are still needed in every budgetary sector in order to continue to progress and address the potential adverse effects that the current financial crisis might have in terms of increasing the risk of fraudulent activities. The Commission proposed in 2012 to reinforce the legal framework to protect the EU’s financial interests by establishing minimum sanctions and common definitions in the Member States for crimes against the EU budget (see IP/12/767 ). Additionally, the Commission recommends that all Member States put in place adequate anti-fraud measures aimed at both prevention and detection, especially where results seem to be missing or insufficient.

What role does Europe's anti-fraud office, OLAF, play in protecting EU funds against fraud?

OLAF’s mission is to protect the EU budget, and thereby taxpayers' money, against fraud. It has three main tasks: firstly, OLAF protects the financial interests of the EU by investigating and combating fraud, corruption and any other illegal activities. OLAF works closely with its counterparts in Member States in this regard. Secondly, OLAF investigates serious matters relating to the discharge of professional duties by staff members of the EU institutions that could result in disciplinary or criminal proceedings. In terms of its investigative scope, OLAF is independent from the Commission. Thirdly, OLAF supports the Commission in the development and implementation of fraud prevention and detection policies.

On 3 July 2013, the European Parliament has approved the amended OLAF Regulation. The reform will strengthen the European Anti-Fraud Office, reinforcing its accountability, but also improving the cooperation with Member States, which are asked to designate a contact point. This closer cooperation should facilitate, among other things, better judicial follow-up of OLAF investigations by all Member States (for more details see MEMO/13/651 ).

Is the Annual Report on the Protection of the EU's financial interests related to the Court of Auditor's Annual Report?

No. The report on the Protection of the EU's financial interests is based on reported irregularities and suspected fraud detected by the Member States.

The Court of Auditors conducts its own specific audits on the basis of its mandate, and the annual report highlights its activities, findings and opinions for a given year.

However, both reports are useful to identify the main areas at risk and where further improvements can be made.

¹ :

The cases have been duly followed up by national authorities with no financial loss involved.