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OLAF recent developments and its support to

Member States in the fight against fraud & irregularities'

Louis SMEETSEuropean Anti-fraud OfficeDirectorate D : PolicyUNIT D4 : Strategic Analysis, Reporting, Joint Operations

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Outline of the presentation

Legal and general framework

Main activities and presentation of OLAF

Toward an enhanced anti-fraud policy in the EU The Commission Anti-Fraud Strategy [CAFS]

Some items about fraud notifications by Member States

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EU Institutional and Horizontal Legal Framework

Article 317 TFEU (ex 274 TEC)

"The Commission shall implement the budget (…) having regard to the principles of sound financial management ".

"Member States shall cooperate with the Commission to ensure that the appropriations are used in accordance with the principles of sound financial management."

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Regulation (EC) nr. 1073/99 concerning investigation conducted by the European Anti-Fraud office [OLAF] is the legal basis for OLAF investigative powers

OLAF’s competences are investigations into cases of fraud, corruption and all other illegal activities detrimental to EU interests.

► organises the various types of investigations (on-the-spot checks)

- internal administrative investigations in all EU institutions/bodies;

- external administrative investigations in MS and Third Countries.

Regulation (EC) nr 1073/99 has been revised and is currently under discussion in Council and European Parliament

EU Institutional and Horizontal Legal Framework

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Importance of clear definitions of “Irregularity” and “Fraud”:

OLAFs’ powers (on-the-spot checks) and activities (reporting system, fraud prevention) depend on whether or not cases brought to OLAF attention correspond to these definitions

important policy items for the protection of the financial interest of the EU budget are besides the tolerable error rates (European Court of Auditors);

» irregularity rates » fraud rates

For detailed figures on the fraud and irregularity rates consult the reports and the statistical annexes on OLAF’s website

Irregularity and Fraud

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The notion of IRREGULARITY Regulation (EC) nr. 1848/2006

"irregularity" has the broad meaning assigned to it by Article 1(2) of Regulation (EC, Euratom) No 2988/95, that is

“any infringement of a provision of Community law resulting from an act or omission by an economic operator which has, or would have, the effect of prejudicing the general budget of the Communities either by reducing or losing revenue accruing from own resources collected directly on behalf of the Communities, or by charging an unjustified item of expenditure to the Community budget”;

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SUSPECTED FRAUD

When notifying irregularities to the Commission, Member States are required since 2006 to identify whether the irregularities involves ‘suspected fraud’.

As defined in Article 2 par. 4 of Regulation (EC) No 1848/2006 suspected fraud means: an “irregularity which has been subject of a primary administrative or judicial finding giving rise to the initiation of proceedings at national level in order to establish the presence of intentional behaviour, in particular fraud […]”.

The component “intention” distinguishes fraud from the more common irregularity.

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Role of OLAF in the Anti-Fraud area

Full responsibility for anti-fraud: policy, deterrence, prevention, investigation;

Analysing/defining risks areas vulnerable to fraud and/or corruption;

Performing fraud-proofing of legislation and management approach;

Strengthening instruments for detecting, investigating and sanctioning fraud;

Developing a culture of cooperation between all competent national and European authorities with full participation & commitment on the ground;

Working on the basis of integrity, impartiality and transparency, in full compliance with the principle of legality and individual rights and freedom.

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(from concepts to reporting on progress and effectiveness)

• Anti-fraud policy development• Fraud prevention initiatives• External relations • Operational & Strategic Analyses• Joint Customs Operations• Protection of the EURO• Funding (Hercule, Pericles)

Review of OLAF’s organisation in 2011: focus on investigation and its role for overall anti fraud policy

Investigations related to:- EU staff

- New Financial Instruments - Centralised expenditure - Expenditure for external aid - Evasion of customs duties - Contraband and counterfeit

tobacco products - Counterfeit products/articles - Agricultural Funds

- Structural Funds Monitoring of the adequate implementation of OLAF recommendations and • assisting competent authorities in the follow-up of cases

Coordination activities related to investigations in MS

Investigative actionsPolicy making

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How to better fight fraud against the EU financial interests?

one of the approaches = PREVENTION !

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Prevention is a very cost-effective approach to dealing with fraud as investigation and prosecution actions require considerable budgets !

However these investigation and prosecution actions

are the responsibility of MS institutions or agencies which may have different priorities and objectives

may take many years and are often completed too late (time barring issues, difficulty to recover…)

Fraud prevention should be embedded in all levels in the management “chain” !

Why is prevention so important ?

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Initiatives adopted by the Commission in relation to

fraud prevention

Since 2001 prevention is a constant concern of the EU institutions with a view to protect the Community’s financial interests. SEC(2001)2029 of 7.11.2001, Communication concerning the fraud

proofing of legislation and contract management;

COM(2007) 806 of 17.12.2007, Communication from the Commission: "Prevention of fraud by building on operational results: a dynamic approach to fraud-proofing“;

In 2011 with COM(2011) 376 the Commission published its « Anti-Fraud Strategy » and « the Commission action plan « 

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Commission Anti-Fraud Strategy[CAFS]

Aim = to combine/balance the legal simplification process with preventive measures against fraud

CAFS covers (while focusing on the activities of the Commission) revenues & expenditures of the EU budget the whole “anti-fraud cycle”: prevention, detection, investigation,

sanctioning and recovery of misused funds cooperation with Member States, third countries and international

organisations

CAFS is supplemented by an action plan insisting in particular on: Anti-Fraud clauses more development of Anti-Fraud measures on the ground the revision of the public procurement directive

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Fraud prevention at national level

The EU Commission/OLAF encourages the development of antifraud strategies at national level: e.g.

Improved and increased risk analysis Stock taking of existing anti-fraud tools: procedures in place, IT based

fraud proofing systems, training… Defining control priorities /approaches for fraud Elaborating action plans

Such anti-fraud strategies should be build according to the approach: prevention + detection + investigation + sanctioning

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Fraud Prevention

Fraud prevention means that at all levels :

Procedures for fraud detection and fraud management are in place.

Initiatives are implemented for raising fraud awareness for all staff

adequate training on fraud prevention issues – including raising fraud awareness – is provided for staff * of:

• managing and audit authorities !• police and judicial authorities

* possibility for EU financial support via Hercule II funding (consult OLAF’s website for details)

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Reporting on fraud and irregularities

Why to report irregularities and suspected frauds:

It is a legal obligation and a major tool for the detection of fraud providing:

• overall overviews of what goes wrong in spending the EU budget

• information for MS & OLAF/ on risk and threat analysis, destined to improve and target controls by MS & OLAF

• the EU Commission with a better idea about the “real” level of fraud: particularly for “suspected frauds” cases.

• Information to establish better the real financial impact of fraud & irregularities for the EU budget (necessary to respect the reporting obligations to the EP and the European taxpayer!).

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Reporting fraud and irregularities via the Irregularity Management System [IMS]

IMS is an electronic platform developed and managed by OLAF to allow MS to report irregularities in a secure & consistent way to the Commission

Consist of 9 different modules (per sector) . National authorities have secure access to their relevant module(s) and can

download intelligence from the IMS for their internal usage.

INFO Ca. 60.000 irregularity reports registered 27 Member States and 2 candidate countries connected 592 organisations registered supplying data input daily OLAF ensures availability, data quality checks, reporting back

Note: Analysis results on the basis of IMS data are valid tools for risk analysis by MS authorities to better target controls !

Detailed figures are made available by OLAF; all reports and their statistical annexes are published on OLAF’s website annually!

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EU fraud & irregularities

fraud & irregularities cases reported in 2011 by Member States in the domain of EAGGF expenditures

irregularities : 2.395 cases and ca. € 178 million

of which suspected fraud : 121 cases and ca. € 76 million established fraud : 18 cases and ca. € 1,3 million

Fraud rates: a high suspected fraud rate does not necessarily mean that more fraud is taking place in a certain Member State. This rate is calculated on the basis of reported (suspected) fraud cases and it is therefore an indication that anti-fraud systems are performing and that reporting obligations are respected. The reliability of data depends of the information transmitted to the Commission by the Member States !

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The low number of suspected and established fraud cases raises again the question of the reasons behind very low fraud notifications by MS.

Is this due to either non-compliance with reporting principles ?? or Is this due to the ability of the control systems in place in MS ??

Already in 2011 the Commission in its report on 2010 requested several MS to explain - their very low fraud rates - how control systems are being adapted to target higher risks area’s

Unfortunately none or very light feedback has been received.

OLAF and the Commission will continue to dialogue with MS in order to clarify this unsatisfactory situation of very low fraud notifications.

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Fraud rate per Member State (2000-2006)

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Thank you for your attention!

Louis SMEETSEuropean Anti-fraud OfficeDirectorate D: PolicyUNIT D4 : Strategic Analysis, Reporting, Joint Operations