# EUR-Lex - 52012SC0230 - EN

*|*

# 52012SC0230

**COMMISSION STAFF WORKING DOCUMENT Methodology regarding the statistical evaluation of reported irregularities for 2011 Accompanying the document Report from the Commission to the European Parliament and to the Council Protection of the European Union's financial interests - Firth against fraud - Annual Report 2011**

			*

			*

TABLE OF CONTENTS

INTRODUCTION....................................................................................................................... 3

1........... THE LEGAL FRAMEWORK FOR
IRREGULARITIES REPORTING........................ 4

1.1........ The legal framework....................................................................................................... 4

1.1.1..... The reporting obligation.................................................................................................. 5

1.1.2..... Derogations to the reporting
obligation............................................................................ 6

1.2........ Implementation of the Reporting
Obligation..................................................................... 6

2........... DEFINITIONS.............................................................................................................. 8

2.1........ Legal definitions.............................................................................................................. 8

2.1.1..... Irregularity...................................................................................................................... 8

2.1.2..... Fraud............................................................................................................................. 8

2.1.3..... Suspected fraud.............................................................................................................. 9

2.2........ Definitions applied in the
analysis..................................................................................... 9

2.3........ Indicators..................................................................................................................... 10

2.3.1..... Irregularity and Fraud Rates.......................................................................................... 10

2.3.2..... Fraud Frequency and Fraud Amounts
Levels................................................................ 11

3........... ELECTRONIC reporting systems................................................................................. 11

3.1........ Commission Own Resources (OWNRES).................................................................... 11

3.1.1..... Monitoring of establishment and
recovery of TOR......................................................... 11

3.1.2..... Procedure for managing Member
States’ reports for write-off........................................ 13

3.1.3..... Particular cases of Member State
failure to recover TOR............................................... 13

3.1.4..... Detection of fraud and
irregularity.................................................................................. 13

3.2........ Irregularity Management System
(IMS)......................................................................... 14

3.2.1..... The national structures and users................................................................................... 14

3.2.2..... The modules................................................................................................................. 14

3.2.3..... Data input and data quality............................................................................................ 15

3.2.4..... Data analysis – cases of
irregularity and (suspected) fraud.............................................. 15

3.2.5..... Impact of IMS on irregularity
reporting.......................................................................... 16

3.3........ Accrual Based Accounting System
(ABAC).................................................................. 17

COMMISSION STAFF WORKING DOCUMENT

Methodology
regarding the statistical evaluation of reported irregularities for 2011

Accompanying the document

Report from the Commission to the
European Parliament and to the Council

Protection of the European Union's
financial interests - Firth against fraud - Annual Report 2011

INTRODUCTION

The present commission staff working paper
accompanies the Annual Report from the Commission to the Parliament and the
Council on the protection of the European Union’s
financial interests and the fight against fraud (further referred to it as
‘Report’) adopted on the basis of article 325 of the
Treaty on the Functioning of the European Union (TFEU).

This document describes the methodology
followed regarding the statistical evaluation of irregularities reported as fraud and other irregularities
in the areas where Member States implement the EU budget (expenditures for natural
resources, cohesion policy and pre-accession funds) and of the collection of
the EU’s traditional own resources, as well as in the area of expenditure
managed directly by the Commission.

EU legislation requires Member States to report
to the Commission, on a quarterly basis, irregularities that have been detected
in the areas of shared management and Traditional Own Resources[1].

Member States must inform the Commission
whether the reported irregularities constitute suspicions of fraud (if they
give rise to the initiation of administrative and/or judicial proceedings at
national level in order to establish the presence of intentional behaviour,
such as fraud[2])
and must update the reported information in relation to the completion of the
relevant proceeding for the imposition of sanctions.

In the area of expenditure managed directly by
the Commission it is the Commission services, which have to qualify[3] the recoveries, whether they
encountered errors, irregularities or suspected fraud.

Regarding recoveries (with the exception of
those related to Agriculture) the analysis in the Report is limited to the
results of the actions undertaken by national authorities to recuperate amounts
unduly paid to beneficiaries (mostly private economic operators). Recoveries concerning
irregularities –reported as fraudulent or not - whose amount does not exceed
EUR 10 000 are excluded from these analyses (see more in details:
derogations to the reporting obligation). The section on Agricultural
expenditure covers all recoveries.

Furthermore, the recovery amounts reflects the
amounts recovered by the national authorities and not by the Commission
services. The exception is the section dedicated to the expenditure directly
managed by the Commission services, which uses data extracted from the
Commission Accrual Based Accounting (ABAC) system.

1.           THE
LEGAL FRAMEWORK FOR IRREGULARITIES REPORTING

1.1.        The
legal framework

European legislation provides for the
protection of the Union’s financial interests in all areas of activity[4]. The FinR sets the principles
and rules for the correct implementation of the budget. Member States are
required to notify the European Commission (EC) of evidence of fraud and other
irregularities. This need is particularly evident in those sectors of the EU budget
where the main responsibility for management is with the Member States, namely,
in the fields of Agriculture and Cohesion Policy (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 EUR 10 000 of EU
finances. This applies at all stages in the procedure for recovering monies
unduly paid or not received.

Regulation No 1150/2000 specifies the
requirement for own resources and Regulation No 1848/2006 for the agriculture
sector. For the Cohesion Policy, which runs over multi-annual programmes the
legal framework is more complex and is covered by Regulations Nos 1681/94[5] and 1831/94[6] for the programming periods
until the 2000-2006 and by Regulation No 1828/2006[7] for the period 2007-2013[8]. Regulation No 498/2007 covers
the European Fishery Fund (EFF).

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/Union and is in accordance with the provisions of
Commission Regulation (EC) 1681/1994[9]
and 1828/2006[10].
This obligation is yet enhanced by the Commission decision granting conferral
of management on extended decentralised basis (EDIS).

1.1.1.     The
reporting obligation

Member States shall report to the EC any
irregularities which have been the subject of a primary administrative or
judicial finding, within two months following the end of each quarter.
Therefore, the reporting period is divided in four quarters the last of which
has as deadline the end of February of the following year[11].

The first communication of a case of
irregularity is also known as ‘Initial Communication’

The information to be submitted concerns, among
others:

(1) 
The identification of the operation or budget
line (for agriculture) affected by the irregularity;

(2) 
The detection method and the modus operandi;

(3) 
The financial impact of the irregularity;

(4) 
The natural and legal persons having committed
the irregularity.

Member States can differ to a subsequent
updating communication the integration of the information of which they do not
dispose at the moment of the initial communication.

Updating communications provide relevant
information about the administrative and judicial follow-up of the
irregularities. In the areas of Cohesion and Pre-Accession information about
financial follow-up has to be provided for irregularities related to previous
programming periods (until 2000-2006 included)[12].

The reporting of irregularities shall happen by
electronic means, using the modules provided by the EC (see chapter 4 of this
document about the electronic reporting systems).

In certain sectors, namely Cohesion Policy and
Pre-accession, financial information has to be expressed in Euro by countries
which have not adopted it as their currency.

1.1.2.     Derogations
to the reporting obligation

As a general rule, where the irregularities
relate to amounts of less than EUR 10 000 chargeable to the general budget
of the EU, Member States shall not send the EC the irregularity communication,
unless the Commission expressly requests it.

Further specific derogations to the reporting
obligation are foreseen in the areas of Agriculture, Cohesion and Pre-accession
policies. More concretely, cases should not be reported:

– 
where the irregularity consists solely of the
failure to partially or totally execute a (co-)financed operation owing to the
bankruptcy of the final beneficiary or the final recipient; however, irregularities
preceding a bankruptcy and cases of suspected fraud must be reported,

– 
if the case has been already brought to the
attention of the administrative authority by the final beneficiary or the final
recipient voluntarily and before detection by the relevant authority, whether
before or after the payment of the public contribution,

– 
where the administrative authority finds a
mistake regarding the eligibility of the financed expenditure and corrects the
mistake prior to payment of the public contribution.

1.2.        Implementation
of the Reporting Obligation

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 fraud”
and other irregularities is not consistent as Member States do not always have
the same definition of criminal risk. Consequently, a certain proportion of
communications received by the Commission does 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”[13] and as a result, some measures
of the possible economic impact of fraud in certain sectors have been made.

2.           DEFINITIONS

For the purposes of this document, two sets of
definitions are used. The first set refers to legal definitions, the second to
specific indicators used throughout the different chapters.

2.1.        Legal
definitions

2.1.1.     Irregularity

Irregularity:
means any infringement of a provision of European 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 European Union or budgets managed by it,
either by reducing or losing revenue accruing from own resources collected
directly on behalf of the Union, or by an unjustified item of expenditure[14].

2.1.2.     Fraud

Fraud: affecting
the European Communities' financial interests shall consist of[15]:

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.”

National legislations contain several
provisions that describe the conducts and the related penalties and sanctions.
Some of these provisions are the result of the implementation of the PIF
Convention into the national legal system.

The two definitions indicated above seem similar as both
refer to “acts or omissions”. In fact, the concept of irregularity is much
wider than that of fraud. Fraud explicitly refers to “intentional” act or
omission. In this respect, the concept of irregularity includes that of fraud,
but refers also to a whole series of infringements of rules which do not imply
a deliberate intent to violate or for which such intent is not clear (for instance
a breach of rules due to the misinterpretation of certain provisions because of
their complexity).

Therefore, the distinction between irregularities and
fraud is that fraud is a criminal act that can only be determined by the
outcome of judicial proceedings. As such, it occurs only when the judicial
procedure has come to an end that the actual amount of fraud can be determined.
While awaiting these 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.

2.1.3.     Suspected
fraud

Suspected fraud[16]: means an irregularity giving rise to the initiation of
administrative and/or judicial proceedings at national level in order to
establish the presence of intentional behaviour, in particular fraud, such as
is referred to in Article 1(1), point (a), of the PIF Convention.

In their communications of irregularity to the
Commission, Member States have been requested to indicate whether a reported
irregularity can be regarded as 'suspected fraud'. This notion was introduced
in order to provide some data for statistical purposes and to avoid the
necessity of waiting until the end of criminal procedures for a final
indictment.

2.2.        Definitions
applied in the analysis

However, it is to be noted that for the purpose
of greater clarity, in the analysis and in the indicatorts only two broad
categories of irregularity are applied:

'Irregularities reported as fraudulent'
are those irregularities for which the fraudulent nature is suspected or
established, also including those irregularities which Member States have not
reported as fraudulent, but whose fraudulent nature could be derived on the
basis of the analysis of the information[17].

'Irregularities not reported as fraudulent'
are any other type of reported irregularities, for which fraudulent nature has
not been ascertained.

2.3.        Indicators

2.3.1.     Irregularity
and Fraud Rates

The Irregularity Rate (IrR) is
calculated using Equation 2-1 below:

Equation Error! No text of specified
style in document.‑1: Irregularity Rate

The Net-Irregularity Rate (Net-IrR) is
calculated in the same way as the IrR, but using exclusively the
'irregularities not reported as fraudulent', as described in equation 2-2
below.

Equation Error! No text of
specified style in document.‑2: Net-Irregularity Rate

The Fraud Rate (FrR) is calculated using
Equation 2-3 below:

Equation Error! No text of
specified style in document.‑3: Fraud Rate

The IrR, Net-IrR and FrR can be calculated by
financial year (as in the case of the Agriculture sector) or on the entire
Programming Period (as in the case of Structural Funds) and by Member State.
The FrR is calculated using amounts linked to cases of suspected and
established fraud[18].

2.3.2.     Fraud
Frequency and Fraud Amounts Levels

The Fraud Frequency Level (FFL) represents the
percentage of cases qualified as suspected frauds on the total number of
reported irregularities and is calculated using Equation 2-4 below.

Equation Error! No text of
specified style in document.‑4: Fraud Frequency Level

The Fraud Amounts Level (FAL) represents the
percentage of financial amounts involved in cases qualified as suspected frauds
on the total reported financial amounts affected by irregularities and it is
calculated using Equation 2-5 below.

Equation Error! No text of
specified style in document.‑5: Fraud Amounts Level

FFL and FAL can be calculated by financial year
(as in the case of the Agriculture sector) or on an entire Programming Period
(as in the case of Structural Funds) and by Member State.

3.           ELECTRONIC
reporting systems

Two main systems are in place for the reporting
of irregularities to the Commission: Own Resources (OWNRES) managed by the
Directorate General for Budget and the Irregularity Management System (IMS)
managed by the European Anti-Fraud Office (OLAF). For the chapter dedicated to
‘Direct expenditure’, data come from a specific functionality of the ABAC
(Accrual Based Accounting) system of the Commission.

3.1.        Commission
Own Resources (OWNRES)

Under Article 6(5) of Regulation No 1150/2000,
Member States are required to communicate to the Commission, via the OWNRES
system, cases of fraud and irregularity, if the TOR amount exceeds EUR 10 000.

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.

3.1.1.     Monitoring
of establishment and recovery of TOR

In its capacity as Authorising Officer
responsible for executing the EU budget, 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 OLAF.

To this end, 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 (in close cooperation with
OLAF, DG TAXUD and DG AGRI) of Member States’ follow-up of recovery in
individual cases, which have a significant financial impact and usually involve
Mutual Administrative Assistance.

Given the Budgetary Authority’s particular
interest in recovery, reliable information must be entered in OWNRES regarding
the number of cases of irregularity and fraud and their development. Member
States have a special responsibility to ensure that appropriate statistical
information on irregularity and fraud is provided to the Commission.

Member States are responsible for making TOR
available to the Commission within the deadlines set 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, if TOR have been established by a Member
State but not yet recovered and if no security has been provided or the secured
amount has been disputed, Member States may enter these TOR amounts in the B-account.
These amounts of TOR are not made available until actually recovered. Most
fraud and irregularity cases relate to B-account items.

In order to get the right picture of Member
States’ TOR recovery activity, it is important to keep in mind that over 97% 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. Since all TOR amounts exceeding
€10 000 in the B-account normally represent an irregularity (fraud included) by
definition, therefore the match between the two - from the standpoint of the
B-account - should be 100%[19]
. Cross-checks are carried out on a regular basis during the Commission
inspections in the Member States.

In return for their collection task, and to
support sound and efficient management of public finances, Member States may
keep 25% of the amounts recovered.

3.1.2.     Procedure
for managing Member States’ reports for write-off

Member States must take all requisite measures
to ensure that established amounts of TOR are made available to the Commission.
This requirement, mentioned in Article 17(1) of Regulation No 1150/2000, also
implies that a Member State is only released from its obligation to make
available TOR if it can prove that the debt is irrecoverable either:

(1) 
for reasons of force majeure; or

(2) 
for other reasons, which cannot be attributed to
that Member State.

There are two ways to conclude that amounts of
TOR have become irrecoverable. 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 debt was established, or in the
event of an administrative or judicial appeal, the final decision was given, or
the last part-payment to the debt was made, whichever is the later. If the
amount of the written-off debt is less than EUR 50 000, Member States do
not have to communicate the case to the Commission, unless the Commission makes
a specific request. However, if the irrecoverable amount of TOR exceeds EUR 50 000,
the write-off must be reported to the Commission which has to decide whether
the necessary conditions are fulfilled in order to release the Member State
from the obligation to make the TOR available.

Member States submit their requests to be
released from the obligation to make the TOR available directly via an IT
application called WOMIS[20]
. In 2011 a WOMIS version 2.0 was released.

3.1.3.     Particular
cases of Member State failure to recover TOR

If TOR are not established because of an
administrative error by a Member State, the Commission applies the principle of
financial liability[21].
The main objective of these procedures is to encourage individual Member States
to improve their administrative performance and to address weaknesses leading
to a loss of TOR. Payments for these cases are made available via the A-account
and they reduce in effect the contribution of the Member States via the GNI
resource in proportion to their contribution to the EU budget.

3.1.4.     Detection
of fraud and irregularity

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. This continuing development is inherent to the
system.

According to OWNRES the moment of discovery is
an indicator for classifying a case as fraud, since primary inspections more
often result in classifying cases as fraud than post-clearance inspections.

The distinction in OWNRES between fraud and
irregularity might not be fully comparable between different Member States. In
their reports Member States make this distinction usually on subjective grounds
and before any court judgment is given. Such subjective grounds vary between
national administrations depending on their national practises and legislation.

3.2.        Irregularity
Management System (IMS)

3.2.1.     The
national structures and users

According to their competencies and
responsibilities national authorities have access to the module(s) which
is(are) relevant for them. IMS flexibility allows a cascading system to be set
up: national organisations can be arranged in a hierarchical structure with
different levels of responsibility, in which the superior level approves the
communication prepared by the inferior and forwards it to the next level or to
OLAF. Within each organisation, users can receive different roles such as
creator (creates the communication of irregularity), manager (validates it and
forwards it to the next level) and observer (read-only access).

IMS is a web based application that can be
accessed directly via internet therefore it does not only support the needs of
the organisations to structure the reporting task, but also introduces an
extended accessibility to the system. This has led to an enormous increase in
the number of users compared to the previous electronic reporting system.

3.2.2.     The
modules

The Irregularity Management System (IMS) is an
application of the Anti-Fraud Information System (AFIS), developed and
maintained by OLAF for a secure exchange of information between Member States
and the Commission.

IMS is a complex application divided in several
modules which enable Member States to report cases of irregularities and
(suspected) fraud under the different sectoral legislations mentioned in
chapter 2. The modules are named after the corresponding Regulation, with the exception
of the two modules related to Pre-Accession Assistance.

Figure 3-1 summarises the architecture of IMS
and distinguishes between modules under development (framed by a dotted line)
and modules currently operational (framed by a continuous line).

Figure Error! No text of
specified style in document.‑1: IMS architecture

3.2.3.     Data
input and data quality

The different modules of IMS offer the users
the possibility of submitting the information requested by the sectoral
regulations in a structured manner. The different fields are grouped in pages
according to 'subjects' and users are assisted through the possibility of
choosing from pre-defined selection lists.

Communications of irregularity can also be imported
into the system using excel or xml files structured according to specific
templates.

Information considered to be essential are
treated as mandatory, meaning that a communication cannot be successfully
finalised and transmitted without it. Other ‘business rules’ provide warnings
or produce errors if the user does not fill correctly the requested data.

Data quality checks are also provided by the
different levels of the reporting structure and by OLAF.

The ‘Initial Communication’ and its ‘Updating
Communication(s)’ form a ‘Case’.

3.2.4.     Data
analysis – cases of irregularity and (suspected) fraud

The analyses are based on the cases of
irregularities and (suspected) fraud gathered through the tools described
above. The extent to which those systems are implemented and used correctly
influences the accuracy and completeness of the analytical results.

As already mentioned before, in their
communications of irregularity to the Commission, Member States have been
requested to indicate whether a reported irregularity can be regarded as
'suspected fraud'. This action is performed in IMS by filling a specific field
(which is mandatory in all modules except module 1848) which allows classifying
any case under three possible categories: (a) irregularity; (b) suspected
fraud; (c) established fraud. Therefore, all Member States having implemented
IMS specify the requested information.

The analysis of this information, however, has
revealed that a number of inconsistencies are still present. Namely, the
classification provided by national authorities can be contradictory with other
data given in the same communication, for instance the description of the types
of irregularities committed and the judicial follow-up undertaken.

In particular, the inconsistencies appear evident
in the presence of the following information:

(1) 
the case is classified as 'irregularity', but it
is also indicated that penal proceedings have been initiated;

(2) 
the case is classified as 'irregularity', but
one or more of the modus operandi described in Table 3-1 are indicated.

Table Error! No text of
specified style in document.‑1: List of modus operandi conflicting with the classification
‘irregularity’

For the purposes of the analyses in presence of
one of the two conditions mentioned above, the case falls in the category
'irregularity qualified as fraudulent' even in the absence of an explicite
'suspected fraud' classification by the national authorities.

3.2.5.     Impact
of IMS on irregularity reporting

The introduction and successful implementation
of IMS has produced a number of consequences on the reporting behaviour and
practise of Member States. Those countries which have adopted the system have

(1) 
rationalised the distribution of the workload
related to the reporting obligation: in the past, level 2 or 3 was filling a
paper form and transmitting it to level 1, which had the task to perform a
quality check and to submit the form to the Commission, on paper or
electronically. If the communication was forwarded on paper, someone in OLAF
was keying in the information into the irregularities database. This
duplication of tasks was at the origin of several clerical mistakes;

(2) 
accelerated the reporting process. The
decentralisation of the reporting task through the same system allows more
users to prepare, at the same time, a greater number of communications. The
“superior” levels are freed from the “filling” of communications and can,
therefore, concentrate on data quality and process the irregularities in a faster
way. This acceleration is possibly the source for an increased number of
reported irregularities in the first years of implementation of the IMS;

(3) 
improved the completeness and overall quality of
the communications, thanks to the mandatory fields and the “consistency rules”
foreseen by the system.

3.3.        Accrual
Based Accounting System (ABAC)

The ABAC system is a transversal, transactional information system that
allows 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. 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.

For the financial analyses, the following data
were used from ABAC:

(1) 
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;

(2) 
Given the fact that recovery orders might relate
to commitments from different budget lines and even from different financial
years. Therefore, as a reference figure the number of commitments made in
financial year 2011 and the related consumption amounts have been applied. This
can serve a better comparison of committed (and payed) amounts and recovery
amounts. Only commitments related to the budget headings and/or place of
residence of the contract partner of the Commission that appeared in the
recovery orders were taken into account. Amounts for administrative expenditure
as well as the legal entity “institutions européennes” were excluded from the
analysis.

Table 3-2 and Table 3-3 list the different
methods of detection and types of irregularity respectively.

Table Error! No text of
specified style in document.‑2: List of methods of detection

Table Error! No text of specified
style in document.‑3: List of types of ‘irregularity’

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 conducted in 2008 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. The Commission has tried to diminish the impact of these
shortcomings to provide more accurate analysis of the irregularities in
expenditures managed directly by the Commission. Nevertheless, the limitations
of the data have not been removed completely and they might still influence the
analysis.

[1]               provided that they do not
fall in the derogations specifically foreseen by the relevant provisions

[2]               Commission Regulation (EC)
No 1848/2006 of 14 December 2006 concerning irregularities and the
recovery of sums wrongly paid in connection with the financing of the common
agricultural policy and the organisation of an information system in this field
and repealing Council Regulation (EEC) No 595/91, OJ L 355, 15.12.2006, p. 56–62

[3]               According to the relevant budgetary and financial
rules, irregularity constitutes any infringement of regulatory and/or
contractual provisions; meanwhile in case the irregularity gives rise to
suspicion of fraud, OLAF must be notified.

[4]               See in particular for
traditional own resources: Article 6(5) of Council Regulation (EC, Euratom) No
1150/2000; for expenditure: Articles 3 and 5 of Council Regulation (EC) No
1848/2006 of 14 December 2006 (OJ L 355, 15.12.2006) for Agriculture; articles
3 and 5 of 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) for the Structural Funds until the programming period
2000-2006 included; articles 3 and 5 of Regulation 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 the Cohesion Fund until the programming
period 2000-2006 included; articles 28 and 30 of Commission Regulation (EC) No
1828/2006 of 8 December 2006 (OJ L 371, 27.12.2006) as amended by Commission
Regulation (EC) No 846/2009 of 1 September 2009 (OJ L 250, 23.9.2009) for the
Cohesion Policy 2007-2013; Articles 55 and 57 of Commission Regulation (EC) No
498/2007 of 26 March 2007 (OJ L 120, 10.5.2007) as amended by Commission
Regulation (EC) No 1249/2010 (OJ L 341, 23.12.2010) for the European Fishery
Fund (EFF).

[5]               Regulation 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 Fisheries Guidance (FIFG). It has been amended
by Regulation No. 2035/2005 of 12 December 2005

[6]               Regulation 1831/94 applies to the Cohesion Fund. It
has been amended by Regulation No. 2168/2005 of 23 December 2005.

[7]               Commission
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.

[8]               Regulation (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.

[9]               As amended by Regulation (EC)
No 2035/2005

[10]             As amended by Regulation (EC) No 846/2009

[11]             For the Agriculture sector, however, the financial
year, which is also taken as a reference for the analysis of reported
irregularities, runs from October 15 to October 14 of the following year.

[12]             Regulation (EC) No 846/2009 has simplified the
reporting obligation specified in Regulation (EC) No 1828/2006.

[13]             The 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 in 2002 and is currently under
revision. Discussions are continuing in the Advisory Committee on the
Coordination of Fraud Prevention.

[14]             Article 2 of Regulation (EC) No
2988/95.

[15]             Article 1(1), point (a), of the "Convention on the
Protection of the European Communities' Financial Interests" (PIF
Convention).

[16]             This definition has been
introduced in Commission Regulation (EC) No 2035/2005. It has been
"confirmed" in Regulation (EC) No 1828/2006 for the Programming
Period 2007-2013 and in Regulation (EC) No 1848/2006 for the agriculture sector.

[17]             For instance whether the
description of the modus operandi is related to the use of false or
falsified documents, certificates, declarations or when the information
indicates that a criminal investigation or proceeding is under way; such
irregularities include therefore those detected by the Commission (OLAF).

[18]             These rates and the following
levels had already been introduced in the 2008 Report and Commission Staff
Working Paper “Statistical Evaluation of Irregularities” with similar names.
This year’s Commission Staff Working Paper “Statistical Evaluation of
Irregularities” defines precisely these concepts in order to use them in the
years to come. In other parts of the Commission Staff Working Paper
“Statistical Evaluation of Irregularities” or in the Report itself, the Fraud
Rate may be referred to also as Suspected Fraud Rate. The calculation method
remains the same. In the 2008 report the same concept was identified as
“suspected fraud rate” or “estimated fraud rate”.

[19]             Items registered in OWNRES are not necessarily also in
the B-account. If 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.

[20]             WOMIS: Write-Off Management and Information
System

[21]             Case C-392/02 of 15 November 2005. These cases are
identified on the basis of Articles 220(2)(b) (administrative errors which
could not reasonably have been detected by the person liable for payment) 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.