# EUR-Lex - 52012SC0229 - EN

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# 52012SC0229

**COMMISSION STAFF WORKING DOCUMENT Statistical Evaluation of Irregularities reported for 2011 Own Resources, Natural Resources, Cohesion Policy, Pre-Accession and Direct Expenditure Accompanying the document REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND TO THE COUNCIL Protection of the European Union's financial interests - Fight against fraud Annual Report 2011**

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TABLE OF CONTENTS

LIST OF ABBREVIATIONS...................................................................................................... 7

PART I – INTRODUCTION....................................................................................................... 9

1........... INTRODUCTION........................................................................................................ 9

1.1........ Scope of the document................................................................................................... 9

1.2........ Structure of the document............................................................................................... 9

2........... THE EUROPEAN UNION BUDGET
(Annexes 1-2).................................................... 9

2.1........ Revenues...................................................................................................................... 10

2.2........ Expenditure.................................................................................................................. 11

2.3........ Management of the Budget........................................................................................... 12

PART II - REVENUES.............................................................................................................. 13

3........... TRADITIONAL OWN RESOURCES (Annexes
3-16)............................................... 13

3.1........ Management of Traditional Own
Resources (TOR)....................................................... 13

3.1.1..... Monitoring of establishment and
recovery of TOR......................................................... 13

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............................................... 15

3.2........ General trends.............................................................................................................. 15

3.2.1..... Types of irregularity and fraud....................................................................................... 16

3.2.2..... TOR and cigarettes....................................................................................................... 17

3.2.3..... Data main sectors TOR................................................................................................ 18

3.3........ Detection of fraud and
irregularity.................................................................................. 18

3.3.1..... Member States' control systems –
Method of detection expressed in cases.................... 18

3.3.1.1.. Method of detection of fraud cases............................................................................... 19

3.3.2..... Member States' control systems –
Method of detection expressed in monetary terms..... 20

3.3.2.1.. Method of detection expressed in monetary
terms - for fraud cases................................ 21

3.3.3..... Customs procedures affected to
fraud and irregularity in 2011- in amounts..................... 22

3.3.3.1.. Customs procedures affected to
fraud in 2011- in amounts............................................ 22

3.3.4..... Percentage of established or
estimated amounts in OWNRES to collected TOR............ 22

3.4........ Recovery and Follow-up.............................................................................................. 24

3.4.1..... Recovery rate............................................................................................................... 24

3.4.2..... Recovered amounts...................................................................................................... 25

3.4.3..... Administrative stage - from 1998
to 2011..................................................................... 25

3.5........ Conclusions.................................................................................................................. 26

PART III - EXPENDITURE...................................................................................................... 28

4........... PRESERVATION AND MANAGEMENT OF
NATURAL RESOURCES (AGRICULTURE AND FISHERIES)................................................................................................................ 28

4.1........ Agricultural expenditure (Annexes
17-22)..................................................................... 28

4.2........ Reporting Year 2011.................................................................................................... 30

4.2.1..... Reporting Year 2011: cases
reported............................................................................ 30

4.2.2..... Reporting Year 2011: reporting
discipline...................................................................... 31

4.2.3..... Reporting Year 2011: financial
follow up of irregularity cases......................................... 32

4.3........ General trends.............................................................................................................. 34

4.3.1..... Reporting Years 2004-2011:
expenditure...................................................................... 35

4.3.2..... Reporting Years 2004-2011: cases
of irregularities........................................................ 35

4.3.3..... Reporting Years 2004-2011: cases
of irregularities reported as fraudulent...................... 37

4.4........ Specific analysis............................................................................................................ 41

4.4.1..... Financial Years 2004-2006: cases
of irregularities reported as fraudulent....................... 42

4.5........ Conclusions.................................................................................................................. 43

4.5.1..... Reporting Year 2011.................................................................................................... 43

4.5.2..... Reporting Years 2004-2011......................................................................................... 43

4.5.3..... Financial Years 2004-2006.......................................................................................... 43

4.6........ Fisheries (Annex 23)..................................................................................................... 43

4.6.1..... Financial framework..................................................................................................... 43

4.6.2..... Management, monitoring and control............................................................................. 43

4.6.3..... Irregularities affecting the EFF
reported in 2011............................................................ 43

5........... COHESION FOR GROWTH AND
EMPLOYMENT (Annexes 24-28)..................... 43

5.1........ Introduction.................................................................................................................. 43

5.2........ Irregularities reporting................................................................................................... 43

5.3........ Reporting Discipline...................................................................................................... 43

5.4........ General trends.............................................................................................................. 43

5.5........ Irregularities reported as
fraudulent................................................................................ 43

5.5.1..... Types of fraud by Fund................................................................................................. 43

5.5.1.1.. ERDF.......................................................................................................................... 43

5.5.1.2.. ESF............................................................................................................................. 43

5.5.1.3.. Other funds.................................................................................................................. 43

5.5.2..... Irregularities
not reported as fraudulent –
Year 2011..................................................... 43

5.6........ Analysis of the 2000-2006
Programming Period– cumulative data................................. 43

5.6.1..... Irregularities reported as
fraudulent - programming period 2000-2006........................... 43

5.6.1.1.. General overview.......................................................................................................... 43

5.6.1.2.. Irregularities reported as
fraudulent –established fraud................................................... 43

5.6.2..... Irregularities not reported as
fraudulent – programming period 2000-2006..................... 43

5.7........ Analysis of the 2007-2013
programming period - cumulative data................................. 43

5.7.1..... Irregularities reported as
fraudulent – 2007-2013 programming  period.......................... 43

5.7.2..... Irregularities reported as
non-fraudulent – programming  period 2007-2013................... 43

5.7.3..... Recovery...................................................................................................................... 43

5.8........ Conclusions.................................................................................................................. 43

5.8.1..... Analysis of irregularities
reported in 2011...................................................................... 43

5.8.2..... Programming Period 2000-2006................................................................................... 43

5.8.3..... Programming Period 2007-2013................................................................................... 43

6........... Pre-accession funds (Annexes
29-30)........................................................................... 43

6.1........ Reporting discipline....................................................................................................... 43

6.2........ General Trends............................................................................................................. 43

6.2.1..... Overall trend................................................................................................................ 43

6.2.2..... Irregularities reported as
fraudulent................................................................................ 43

6.2.2.1.. Irregularities reported as
fraudulent in relation to Pre-Accession Assistance (2000-2006) 43

6.2.2.2.. Irregularities reported as
fraudulent in relation to the Instrument for Pre-Accession (2007-2013)          43

6.2.3..... Irregularities not reported as
fraudulent.......................................................................... 43

6.2.3.1.. Irregularities not reported as
fraudulent in relation to Pre-Accession Assistance (2000-2006)   43

6.2.3.2.. Irregularities reported as
non-fraudulent in relation to the Instrument for Pre-Accession (2007-2013)   43

6.2.4..... Recovery for the Pre-Accession
Assistance – Cumulative results 2002-2011................. 43

6.3........ Conclusions.................................................................................................................. 43

7........... DIRECT EXPENDITURE – CENTRALISED
DIRECT MANAGEMENT................. 43

7.1........ Introduction.................................................................................................................. 43

7.2........ Analysis of irregularities
reported as fraudulent............................................................... 43

7.2.1..... Financial amounts involved............................................................................................ 43

7.2.2..... Recoveries by geographic area and
Member State........................................................ 43

7.2.3..... Method of detection..................................................................................................... 43

7.2.4..... Types of error.............................................................................................................. 43

7.2.5..... Time delay.................................................................................................................... 43

7.3........ Recovery...................................................................................................................... 43

7.4........ Conclusions.................................................................................................................. 43

ANNEXES................................................................................................................................ 43

ANNEX 1 – SUMMARY OF FINANCING OF THE GENERAL
BUDGET BY CLASS OF OWN RESOURCE AND BY MEMBER STATE, IN MILLION EUR................................................................ 43

ANNEX 2 - EVOLUTION OF BUDGET PAYMENT
APPROPRIATIONS BY HEADING IN 2011 (IN MILLION EUR)........................................................................................................................... 43

ANNEX 3 – NUMBER OF CASES OWNRES AND AMOUNTS
– PERIOD 2008-2011 PER MEMBER STATE 43

ANNEX 4 – OWNRES CASES PER MEMBER STATE......................................................... 43

ANNEX 5 – IMPACT ON CUSTOM PROCEDURE FREE
CIRCULATION......................... 43

ANNEX 6 – TOP 10 CHAPTER HEADINGS.......................................................................... 43

ANNEX 7 – GOOD AFFECTED BY FRAUD AND
IRREGULARITY – PERIOD 2009-2011 43

ANNEX 8 – FRAUD AND IRREGULARITIES: BREAKDOWN
BY ORIGIN OF GOODS.. 43

ANNEX 9 – SEIZED AND CONFISCATED GOODS
(cigarette CN 2402 2090)................... 43

ANNEX 10 – PERCENTAGE CLASSIFICATION OF FRAUD
PER MEMBER STATE 2009-2011          43

ANNEX 11 – AMOUNTS INVOLVED IN FRAUD PER
MEMBER STATE PERIOD 2009-2011  43

ANNEX 12 - METHODS OF DETECTION OF OWNRES
CASES – YEAR 2011................ 43

ANNEX 13 – CUSTOMS PROCEDURES AFFECTED TO
FRAUD AND IRREGULARITY IN 2011 – BASED ON ESTABLISHED AMOUNTS...................................................................................... 43

ANNEX 14................................................................................................................................ 43

ANNEX 15 – RECOVERY RATE TRADITIONAL OWN
RESOURCES (RR)...................... 43

Annex 16 – Administrative stage of all closed
cases from 1989 to 2011....................................... 43

ANNEX 17: AGRICULTURAL EXPENDITURE FINANCIAL
YEARS 2004-2011............... 43

ANNEX 18: REPORTING YEARS 2004–2011 – cases
of irregularities reported as fraudulent.. 43

ANNEX 19 FINANCIAL YEAR 2004 – detailed
figures on cases, amounts, rates and levels..... 43

ANNEX 20: FINANCIAL YEAR 2005 – detailed
figures on cases, amounts, rates and levels.... 43

ANNEX 21: FINANCIAL YEAR 2006 – detailed
figures on cases, amounts, rates and levels.... 43

ANNEX 22: FINANCIAL YEARS 2004–2006 –
beneficiaries and cases of irregularities reported as fraudulent           43

ANNEX 23 – EUROPEAN FISHERY FUND.......................................................................... 43

ANNEX 24 – COHESION FOR GROWTH AND EMPLOYMENT
POLICY* - GENERAL TRENDS      43

ANNEX 25 - REGULATION No 1681/94:
IRREGULARITIES REPORTED IN 2011............ 43

ANNEX 26 - REGULATION No 1828/2006:
IRREGULARITIES REPORTED IN 2011........ 43

ANNEX 27 - REGULATION
No 1828/2006: RECOVERIES IN 2011.................................... 43

ANNEX 28 - REGULATION N. 1831/94:
IRREGULARITIES COMMUNICATED BY MEMBER STATES UNDER IN 2011....................................................................................................................... 43

ANNEX 29 - PRE-ACCESSION ASSISTANCE:
IRREGULARITIES REPORTED IN 2011. 43

ANNEX 30 - INSTRUMENT FOR PRE-ACCESSION:
IRREGULARITIES REPORTED IN 2011 43

ANNEX 31 - IRREGULARITIES REPORTED BY MEMBER
STATES IN 2011.................... 43

COMMISSION STAFF WORKING DOCUMENT

Statistical Evaluation
of Irregularities reported for 2011
Own Resources, Natural Resources, Cohesion Policy, Pre-Accession and Direct
Expenditure

Accompanying the document

REPORT FROM THE COMMISSION TO THE
EUROPEAN PARLIAMENT AND TO THE COUNCIL

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

LIST OF
ABBREVIATIONS

ABAC || Accrual Based Accounting

AFIS || Anti-Fraud Information System

CN || Combined Nomenclature

COCOLAF || Advisory Committee for the Coordination of Fraud Prevention

CSWD || Commission Staff Working DocumentDocument

DG AGRI || Directorate General for Agriculture and Rural Development

DG EMPL || Directorate General for Employment, Social Affairs and Equal Opportunities

DG MARE || Directorate General for Maritime Affairs and Fisheries

DG REGIO || Directorate General for Regional Policy

DG TAXUD || Directorate General for Taxation and Customs Union

EAFRD || European Agricultural Fund for Rural Development

EAGF || European Agricultural Guarantee Fund

EAGGF || European Agricultural Guidance and Guarantee Fund

EC || European Commission

EFF || European Fishery Fund

EP || European Parliament

ERDF || European Regional Development Fund

ESF || European Social Fund

EU || European Union

EU-10 || The 10 Member States joining the EU in 2004

EU-15 || The 15 Member States before the enlargement of 2004

EU-2 || The 2 Member States joining the EU in 2007

EU-25 || The 25 Member States before the enlargement of 2007

EU-27 || The 27 Member States of the European Union

EUR || Euro

EURATOM || European Atomic Energy Community

FAL || Fraud Amount Level

FFL || Fraud Frequency Level

FIFG || Financial Instrument for Fishery Guidance

FinR || Financial Regulation

FrR || Fraud Rate

FY || Financial Year

GNI || Gross National Income

IMS || Irregularity Management System

IPA || Instrument for Pre-Accession

IrR || Irregularity Rate

OLAF || European Anti-Fraud Office

OWNRES || Own Resources

PAA || Pre-Accession Assistance

PIF || Protection of Financial Interests (European Convention on the)

PIF Report || Annual Report on the Protection of the EU financial interests

TFEU || Treaty on the Functioning of the European Union

TOR || Traditional Own Resources

VAT || Value Added Tax

WOMIS || Write-Off Management and Information System

PART I –
INTRODUCTION

1.           INTRODUCTION

1.1.        Scope
of the document

The present document[1] is based on the analysis of the
notifications provided by national authorities of cases of irregularities and
suspected or established fraud. The reporting is performed in fulfilment of a
legal obligation enshrined in sectoral European legislation.

The document is accompanying the Annual Report
adopted on the basis of article 325 of the Treaty on the Functioning of the
European Union (TFEU), according to which “The Commission, in cooperation with
Member States, shall each year submit to the European Parliament and to the
Council a report on the measures taken for the implementation of this
article”.

For this reason, this document should be
regarded more as an analysis of the achievements of Member States rather than
of their failures.

The methodology, the data sources and the data
capture systems are explained in detail in the Commission Staff Working
Document – Methodology for the Statistical Evaluation of Irregularities.

1.2.        Structure
of the document

The present document is divided in three parts.

The first introductory part is composed of two
chapters which contain, respectively: the structure and scope of the document
and a short description of the European Budget and its different “management”
modes.

The second is dedicated to the analysis of
irregularities reported in the area of the Traditional Own Resources
(Revenues).

The third is composed of 5 chapters dedicated,
respectively, to Agricultural expenditure, European Fisheries Fund, Structural
measures, Pre-accession Assistance and Direct expenditure.

2.           THE
EUROPEAN UNION BUDGET (Annexes 1-2)

Taxpayers' money is used by the European Union
(EU) to fund activities that all Member States and parliaments have agreed upon
in the Treaties. The overall budget for 2010 is about EUR 141.5 billion and it
represents around 1% of the Union's wealth.

2.1.        Revenues

The EU has its 'own resources' to finance its
expenditure. Legally, these resources belong to the Union. Member States
collect them on its behalf and transfer them to its budget. Own resources are
of three kinds:

– 
Traditional own resources (TOR) — these consist of customs duties that are charged on imports
of products coming from a non-EU state. In addition a small part of the revenue
comes from sugar levies collected from EU sugar producers.

– 
The resource based on value added tax
(VAT) is a uniform percentage rate that is applied to each Member State’s
harmonised VAT revenue.

– 
The resource based on gross national income (GNI)
is a uniform percentage rate applied to the GNI of each Member State.

The budget also receives other revenue, such as
taxes paid by EU staff on their salaries, contributions from third countries to
certain EU programmes and fines on companies that breach competition or other
laws.

Revenue flows into the budget in a way which is
roughly proportionate to the wealth of the Member States. The United Kingdom,
Germany, the Netherlands, Austria and Sweden, however, benefit from some
adjustments when calculating their contributions.

The total EU revenue for 2011 amounts to about
EUR 126.5 billion. Annex 1 provides a summary of
financing by type of own resource and by Member State; Chart 2-1 shows how the
four elements indicated above contribute to the EU budget.

Chart Error! No text of
specified style in document.‑1: Source of financial resource to the European Budget

2.2.        Expenditure

The EU Budget for 2011 includes 5 headings of
expenditure:

– 
Sustainable Growth represents the largest share of the EU budget, which will go to
research, innovation, employment and regional development programmes;

– 
Natural Resources cover the second largest portion of the expenditure supporting the
agricultural expenditure and direct aids, rural development, fisheries and
environment; it is divided between ‘Modernising farming and producing
high-quality food’ and ‘Rural development’;

– 
Citizenship, Freedom, Security and Justice supports initiatives aiming at strengthening active
citizenship or addressing issues like terrorism, crime and immigration;

– 
The EU as a Global Player sets the
resources for the Common Foreign and Security Policy, the EU Neighbourhood
Policy, Pre-Accession Assistance, Humanitarian Aid and Development Cooperation;

– 
The administrative expenditure includes
the running costs for the European Institutions.

Chart 2-2 shows the distribution of the EU
financial resources among the six different headings in commitment
appropriations, while Annex 2 provides a more detailed overview of the 2011
budget (in commitment and payment appropriations).

Chart Error! No text of
specified style in document.‑2: Distribution of the expenditure financial resource by Budget Heading

The total payment appropriations for 2011
amount to EUR 126.5 billion.

2.3.        Management
of the Budget

According to article 317 of the TFUE, the
Commission shall implement the budget. Council Regulation (EC, Euratom) No
1605/2002[2]
of 25 June 2002 on the Financial Regulation (FinR)[3] applicable to the general
budget of the EU indicates that the Commission implements the budget:

(1) 
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 EU - 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;

(2) 
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;

(3) 
by joint management with international
organisations: certain implementation tasks are entrusted to international
organisations.

PART II - REVENUES

3.           TRADITIONAL
OWN RESOURCES (Annexes 3-16)

3.1.        Management
of Traditional Own Resources (TOR)

3.1.1.     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 98% of
established TOR is subsequently recovered without any particular problem. These
amounts are entered in the A-account and made available to the EU budget. 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 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 recovered. 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 as provided for in Article 17(2) of Regulation No
1150/2000;

(2) 
Regular inspection in Member States of the
establishment and recovery of TOR and B-account entries as provided for in
Article 18 of Regulation No 1150/2000;

(3) 
Specific monitoring (in close cooperation with
European Anti-Fraud Office (OLAF), the Directorate-General for Taxation and
Customs Union (TAXUD) and the Directorate-General for Agriculture and Rural
Development (AGRI)) of Member States’ follow-up of recovery in individual
cases, which have a significant financial impact and which may involve Mutual
Administrative Assistance.

These three methods allow the Commission to
monitor Member States’ performance without interfering too much in their
day-to-day operations.

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:

(a) 
for reasons of force majeure; or

(b) 
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[4]. In 2011 a WOMIS version 2.0 was released.

In 2011 218 write-off reports amounting to EUR 61.5
million were communicated via WOMIS to the Commission by 17 Member States. The
table below shows those cases have been processed by the Commission in 2011
with the following results:

Table OR1: Write-off reports treated in
2011

MS || Cases[5] || Total amount || Acceptance || Refusal || Additional information request

N || EUR || N || EUR || N || EUR || N || EUR

AT || 22 || 7.518.020 || 11 || 2.819.216 || 2 || 232.478 ||  9 || 4.466.325

BE || 16 || 6.008.748 || || || 1 || 120.840 || 10 || 5.079.355

CZ || 4 || 306.216 || 4 || 306.216 || || || ||

DE || 91 || 15.605.657 || 31 || 6.287.550 || 6 || 866.125 || 46 || 7.704.085

DK || 1 || 196.860 || || || || || 1 || 196.860

ES || 16 || 4.844.534 || 5 || 1.563.508 || 7 || 1.452.123 || 4 || 1.828.903

FI || 3 || 295.411 || || || || || 1 || 111.641

FR || 11 || 5.014.018 || 6 || 601.312 || 5 || 4.412.707 || ||

UK || 8 || 8.429.677 || 5 || 1.221.983 || 1 || 6.999.492 || 1 || 66.750

HU || 3 || 658.034 || 3 || 658.034 || || || ||

IT || 12 || 2.562.676 || 2 || 181.374 || 9 || 2.255.704 || 1 || 125.598

LT || 2 || 165.825 || 1 || 64.634 || || || 1 || 101.191

LV || 7 || 911.958 || 3 || 320.782 || 2 || 323.868 || 2 || 267.308

NL || 1 || 1.114.350 || || || || || 1 || 1.114.350

PT || 17 || 6.595.785 || 2 || 118.044 || 11 || 5.103.092 || 4 || 1.374.649

SE || 1 || 360.003 || || || || || 1 || 360.003

SK || 3 || 916.044 || || || || || 3 || 916.044

Total || 218 || 61.503.816 || 73 || 14.142.653 || 44 || 21.766.429 || 85 || 23.713.062

In addition, 245 cases which had been communicated
before 2011 to the Commission have been processed in 2011 with the results
showed in Table OR2.

Table OR2: Results of cases communicated
before 2011 processed in 2011

MS || Cases[6] || Total amount || Acceptance || Acceptance || Refusal || Refusal || Additional information request || Additional information request

N || EUR || N || EUR || N || EUR || N || EUR

BE ||  8 ||  1.443.109 ||  5 ||  770.820 ||  3 ||  672.290 || ||

DE ||  144 || 83.972.636 ||  85 ||  62.938.798 ||  20 ||  2.486.292 ||  36 ||  16.772.522

DK ||  2 ||  782.594 || || ||  2 ||  782.594 || ||

ES ||  45 ||  15.185.139 ||  8 ||  5.110.026 ||  17 || 3.330.898 ||  20 ||  6.744.215

FI ||  3 ||  346.823 || 3 || 346.823 || || || ||

FR ||  4 ||  5.401.098 ||  3 ||  5.166.948 || || || 1 || 234.150

IT ||  20 || 20.593.145 || || ||  20 || 20.593.145 || ||

LV ||  1 || 109.969 || 1 || 109.969 || || ||   ||

NL ||  17 || 24.320.060 ||  17 ||  24.320.060 || || || ||

UK ||  1 ||  181.222 ||  1 ||  181.222 || || || ||

Total ||  245 || 152.335.795 ||  123 || 98.944.666 ||  62 ||  27.865.219 ||  57 ||  23.750.887

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.

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[7].
In 2011 Member States have been held financially liable
for over €26 million and new cases are being given appropriate follow-up.

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.

3.2.        General
trends

The number of cases communicated to OWNRES
for 2011 is currently 15% lower in comparison with 2010 (from 5 544 to 4
696). The amount of TOR involved is 27% lower (from EUR 439 million to EUR 321
million)[8].
All data and comparisons in this report are drawn up from queries made in
OWNRES on 12 March 2012 (cut-off date). A comparison between data from this
year's report to data from the previous year report where the cut-off data was
on 4 March 2011 shows that the differences between 2011 and 2010 are smaller:
The number of cases in 2010 was at that time 4 744 while the number of cases
for 2011 is 4 696. This is a decrease of 1%. The amount of TOR is 18% lower
(from EUR 393 million in 2010 to € EUR 321 million in 2011).

The number of communications from the ten
new Member States showed continued growth since their accession in 2004
until 2007. From 2007 to 2009 the communicated cases remained stable. In 2010 and
2011 the communicated cases declined, although the amount of TOR increased.

The number of communications from Bulgaria and
Romania peaked in 2010 at 152 cases. However, in 2011 the number of
communications fell to 83 cases for both countries.

The OWNRES database now contains 68 510 cases
in total (1989-2011) and shows an increase of 9% during 2011. Significant
changes in the number of registrations in 2011 compared with 2010 can be
seen for Latvia (+ 89%), Finland (+ 72%), Denmark (+ 52%), Cyprus (- 64%),
Austria (- 54%), Slovenia (- 52%), Malta (- 50%) and Romania (- 48%).
Significant changes of amounts can be seen in Lithuania (+ 714%),
Finland (+ 184%), Poland (+ 179%), Belgium (-76%), Denmark (-85 %), Czech
Republic (- 69%) and Slovakia (-69 %)[9].

With the exception of the year 2010, the number
of belatedly discharged transit operations decreased continually in the
previous years.[10]
In the case of transit, practice shows that 60-90% of the initially established
debts are ultimately cancelled, because of proof of regular discharge after
all.

3.2.1.     Types
of irregularity and fraud

A breakdown of frauds and irregularities by customs
procedure and by mechanism type confirms that most cases of
irregularity or fraud relate to the procedure of release for free
circulation (80% of established amounts[11]).
False declarations (incorrect classification, incorrect value, incorrect
country of origin and incorrect use of 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 code[12])
the most affected by fraud and irregularities in 2011, as in previous years,
are TVs/monitors etc. (CN 85) and Tobacco / cigarettes (CN 24). Furthermore,
Articles of Iron and Steel (CN 73) and Oil (CN 15) increased in importance when
compared to 2010. Sugar (CN 17) decreased in importance and was not listed
anymore in 2011 in the TOP 10 Chapter Heading list.[13]

Chart OR1:
Fraud and irregularities breakdown by good in 2009 (in million EUR)[14]

Evaluation of the origin of goods
subject to fraud and irregularity[15]
reveals that, just as in 2010, goods originating from China and the USA remain
very much affected. The number of cases originating from Indonesia, Taiwan and
Malaysia has increased. Zimbabwe is listed as top 4 country of origin which
results from one big case involving EUR 15 million detected in Lithuania.
Ecuador has decreased in importance as country of origin in comparison with the
last year.

3.2.2.     TOR
and cigarettes

In 2011 there were 145 cases registered of
seized and confiscated cigarettes (CN code 24 02 20 90) involving estimated TOR
of around EUR 26 million. In 2010 the number of registered cases concerning seized
and confiscated goods was 212, totalling around EUR 25 million. Greece has
reported the highest amount of seized and confiscated cigarettes (EUR 10,6
million). No cases have been indicated by Austria, Germany, Denmark, Spain,
Luxembourg, Portugal, Cyprus, the Czech Republic, Estonia, Malta and Romania[16].

3.2.3.     Data
main sectors TOR

See Annexes 3-10.

3.3.        Detection
of fraud and irregularity[17]

Of all the cases registered in OWNRES in 2011
15% (723 out of 4 696 registered cases) are categorised as fraud, which is less
than in 2010[18].
However, like in previous years, the differences between Member States are
relatively large. In 2011 most of the Member States categorised between 10-50%
of all cases as fraud. However, four Member
States categorised zero cases as fraud.[19]
Seven Member States categorised between 1% and 10% of the cases as fraud.[20] Five Member States registered
more than 50%[21]
of the cases as fraud. These figures demonstrate
that 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. It
should also be noted that for open cases such a classification is not static in
OWNRES but can be changed by the Member State at any time in the course of the
national process. 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.

3.3.1.     Member
States' control systems – Method of detection expressed in cases

The methods of detection of irregularities or
fraud cases registered vary between Member States. There are several possible
explanations for these differences, for instance the customs control strategies
applied, the administrative structure in the Member State, the way of
classifying a method, the reporting authorities involved or the relative
presence or absence of type of customs procedures.

A range of detection methods can reveal
irregularity or fraud. Judging from the 2011 data, most cases have been
revealed by 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 46% of the cases discovered, whereas primary national inspections cover 24%.
All in all, the vast majority of cases (70%) were detected in 2011 by means of
either primary national inspections or post-clearance inspections.

It is clear that the shift from primary to
post-clearance inspections, which could already be seen in previous years,
continued in 2011. The relative importance of inspections by anti-fraud
services was stable with 8% in 2010 and also in 2011. Since the final results
of such inspections take more time than regular inspections, a (slight)
increase in the percentage for 2011 may be expected in future registrations.

CHART OR 2:
Method of detection 2009-2011

3.3.1.1.  Method
of detection of fraud cases

In 2011, most fraud cases (38%) were revealed
during a primary national inspection (either physical inspections or
inspections of documents). Other methods of frequently featured methods of
detection for fraud discovery were inspections by anti-fraud services (21%),
national post-clearance inspections (19%) followed by tax audits (17%).

CHART OR 3:
Method of detection of fraud cases 2009-2011

3.3.2.     Member
States' control systems – Method of detection expressed in monetary terms

The map below illustrates by which methods
OWNRES cases - in established amounts - have been discovered by the Member
States[22]
in 2011. For reasons of presentation the following methods are included in the
term "ex-post controls": audit of the accounts, Union inspections,
inspections by anti-fraud services, inspection visits, national post-clearance
audits and tax audits. In EUR – 27 around 14% of all cases – in established
amounts – have been discovered by primary inspections, whereas 81% of
all cases – in amounts – have been detected via "ex-post controls".
In the following four Member States more than 40 % of all cases – in amounts –
have been detected by primary inspections: Finland (79%), Italy (48%), Cyprus
(48%) and Bulgaria (59%). More than 90% of all cases – in amounts – have been
detected by "ex-post controls" in Greece (99%), Ireland (100%),
Netherlands (93%), Portugal (92%), Sweden (100%), United Kingdom (93%),
Lithuania (97%), Malta (100%), Poland (92%), Slovenia (99%) and Romania (99%).
In three Member States more than 10 % of all cases – in amounts- have been
detected by voluntary admission.[23]

MAP OR 1: Visualising the method of detection[24]

3.3.2.1.  Method
of detection expressed in monetary terms - for fraud cases

Of all fraud cases registered in OWNRES in
2011, around 20% of all fraud cases – in established amounts –
have been discovered by primary inspections, whereas 79% of all cases – in
amounts – have been detected via "ex-post controls". In the following
four Member States more than 50% of all fraud cases – in established amounts –
have been detected by primary inspections: Finland, the United Kingdom, the
Netherlands, and Poland. For 18 Member States, more than 50% of all fraud cases
– in amounts – have been detected by "ex-post controls". Three Member
States reported fraud cases which were admitted voluntarily.[25]

3.3.3.     Customs
procedures affected to fraud and irregularity in 2011- in amounts

In 2011, the majority of established amounts in
OWNRES (80%) in EU-27 are related to the customs procedure "release for
free circulation".[26]
7% of all established amounts of OWNRES cases in 2011 involve the transit
procedures whereas it was only 3% in 2010. Furthermore, 6% of all established
amount of OWNRES relate to the customs warehousing and 5% to the inward
processing. Between the Member States there are however significant differences.
In Lithuania 93% of all established amounts of OWNRES cases relate to the
transit procedure, whereas 3 % relate to the release for free circulation.
Moreover, customs warehousing was much affected, in amounts, in Finland (54%)
and Belgium (38%). Finally, 3% of all established amounts in EUR-27 fall under
the category "Other". This category combines, among others, the
following procedures or treatments: Processing under customs control, temporary
admission, outward processing and standard exchange system, exportation, free
zone or free warehousing, re-exportation, destruction and abandonment to the
Exchequer. In Malta 100% of the established amounts concerned the
"destruction", in Greece 56% of the established amounts are related
to "re-exportation" and in Romania 69% relate to the "processing
under customs control".

3.3.3.1.  Customs
procedures affected to fraud in 2011- in amounts

In 2011, the majority of established amounts
(71%) for fraud cases in EU-27 are related to the customs procedure
"release for free circulation". 20% of all established amounts of
OWNRES fraud cases in 2011 involve the transit procedures[27]. 5% of all established amounts
where fraud was at stake affect the customs warehouse procedure. Fraud cases
related to customs warehousing procedure concerned especially Finland, Germany
and Romania. Fraud in inward processing procedure was only detected in Spain.

3.3.4.     Percentage
of established or estimated amounts in OWNRES to collected TOR

As indicated before the biggest part of all
amounts of TOR established are recovered without any particular problem and
made available to the Commission via the A-account. For 2011 around EUR 22.4
billion TOR (gross) have been collected by the Member States and thereafter
made available to the EU budget after deduction of 25% collection costs. These
amounts relate mainly to ‘normal’ import flows where goods are declared for a
customs procedure (e.g. release for free circulation) giving rise to a customs
debt. In comparison, according to the OWNRES communications, around EUR 388
million have been established and estimated by the Member States in
connection to detected cases of fraud and irregularities where the amount at
stake exceeds EUR 10 000. For EU-27 the established and estimated amounts
reported in OWNRES represent 1.73% of the collected TOR (gross) of 2011.[28] This proportion has decreased
in comparison to the previous year where a percentage of 2.00% was calculated.
A percentage of 1.73% reflects that out of each EUR 100 of TOR (gross)
collected an amount of irregularity or fraud is registered in OWNRES of EUR 1.73.
Within the Member States there are differences. In 10 Member States the
percentage is equal or above the average of 1.73%. The highest percentage can
be seen in Lithuania with 27.79%. In 9 Member States the percentage is below 1%.
In 14 Member States the percentage is between 1% and 3%. Luxembourg did not
report any OWNRES cases in 2011. For EUR-15 the established and estimated
amounts reported in OWNRES represent 1.65% of the collected TOR, whereas in
EUR-12 the established and estimated amounts reported in OWNRES represent 2.84%
of the collected TOR. The percentage can significantly vary from one year to
another. For example, Austria had a proportion of 4.37% in 2010, whereas the
proportion dropped to 1.39% in 2011. Furthermore, the percentage in Denmark
declined from 5.89 % in 2010 (above the average) to 0.92 % in 2011 which is
below the average. The biggest increase can be seen in Lithuania from 3.88% in
2010 to 27.79% in 2011. The 7 Member States[29]
which collected most TOR show, in comparison to the previous year, a relatively
stable proportion between established and estimated OWNRES amounts to collected
TOR. With the exception of Italy and Spain the difference to the previous year
is less than 0.5 percentage points in those Member States.

Especially in Member States with a smaller
share of TOR collection, individual bigger fraud cases detected in a certain
year may affect importantly the annual percentage. Several factors influence
this percentage, e.g. the type of traffic and trade, the level of compliance of
the economic operators, and, the location of a Member State. Under these
variable factors the percentage is also affected on the way how the Member
State's customs control strategy is set up to target risky imports and to
detect TOR related fraud and irregularity.

In recent years the Commission has in its TOR
inspections put a special emphasis on Member States' customs control strategies
and is monitoring closely Member States' action in relation to the observations
made during its inspections[30].

MAP OR 2: visualising the percentage of established or estimated amounts in
OWNRES to collected TOR

3.4.        Recovery
and Follow-up

3.4.1.     Recovery
rate

Member States have to recover all established
amounts including those they register in OWNRES. 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 that in average 43% of the
initially established amount was corrected (cancelled) since 1989. For closed
cases related to transit this may reach up to 90%. As a consequence, Belgium
and the Netherlands show more corrections than average, because establishments
related to transit occur more frequently. This is due to the ports of Antwerp
and Rotterdam.

Differences in recovery results arise from
factors such as the type of fraud or irregularity or the type of debtor
involved. The recovery rate for all years (1989-2011) is 50%[31].

The overall recovery rate for 2010 recorded in
the last year’s report was 46%, although it has since then climbed to 51%. At
present the recovery rate for 2011 is 52%[32].
In other words, of every EUR 10 000 of duties established in 2011 in
OWNRES, approximately EUR 5 200 has already been paid. Because recovery is
ongoing, the recovery rate is constantly changing.

There are big differences of the recovery rate
within the Member States. The highest recovery rates are in Estonia (100%),
Slovakia (90%), Denmark (81%) and Germany (81%).

3.4.2.     Recovered
amounts

Irregularity and fraud cases which have been
detected in 2011 show an established amount of EUR 321 million. Thereof EUR 155
million were recovered for cases of irregularities and EUR 10 million for cases
of fraud in EU-27. In total EUR 166 million were recovered by all Member States
for the cases which were detected in 2011. In absolute numbers Germany
recovered most with EUR 62 million followed by the United Kingdom with EUR 32
million in 2011. The lowest recovery rates were in Greece (2%) and Lithuania
(4%). In addition, the Member States continued their recovery actions related
to detected cases of previous years. EU-27 recovered EUR 305 million in 2011
which related to detected cases between 1989 and 2011.

3.4.3.     Administrative
stage - from 1998 to 2011

68 510 cases have been communicated in OWNRES
from all Member States. Thereof 9 528 cases are still open. 58 982 cases have
been closed, which means that certain financial stage has been reached. 87% of
the cases were closed in an administrative procedure.[33] The term "administrative
procedure" includes the following administrative stages: Administrative
investigation, administrative procedure (debt established), administrative
appeal or review. 8% of the cases concluded with a remission procedure,
write-off procedure for non-recoverable debts or the non-establishment due to
an administrative error. Of all cases 5% are closed with a judicial procedure.
Until a final decision of a court is given, the OWNRES case remains open. From
1989 to 2011 OWNRES cases were relatively often subject to judicial procedures
in the following countries: Estonia (29% of all closed OWNRES cases), in Latvia
(27%), Italy (25%) and in Greece (20%). In Finland, Ireland, Luxembourg and
Cyprus zero cases were closed in a judicial procedure.

3.5.        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 OLAF.

(1) 
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. The distinction in OWNRES between fraud and irregularity might not
be fully comparable between different Member States. 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.

(2) 
The goods involved in irregularities and frauds
demanding Member States’ attention are very diverse. TVs keep their relevance
in 2011 and are like in previous years the most important goods involved in
registered cases of irregularity or fraud. Tobacco, cigarettes and oil gained
significance. The origin of the goods concerned is likewise varied, although
some countries remain continuously at the top of the rankings (such as China
and the USA). Some Asian countries (Taiwan, Malaysia and Indonesia) and
Zimbabwe were of more importance in 2011.

(3) 
The established amounts of TOR at stake in
irregularity and fraud are, according to OWNRES, EUR 321 million in 2011. Based
on experience from previous years, it is likely that this figure for 2011 will
change in future years due to new establishments and/ or corrections of
establishment.

(4) 
The methods of detection vary between Member
States, however, in 2011 post-clearance inspections and primary controls
(during the clearance) are creating 70 % of all OWNRES cases. Thereof, the
shift from primary (24%) to post-clearance inspections (46%) continued in 2011.
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. However, during 'ex-post' controls
fraud cases with relatively high amounts are detected.

(5) 
The customs procedure release for free
circulation was like in the previous years the most affected to fraud and
irregularities. 80% of all amounts reported in OWNRES have been detected under
the release for free circulation. However, there are differences between the
Member States. In some Member States most cases have been detected during the
transit procedure, customs warehousing, inward processing, free zone or
destruction (of cigarettes).

(6) 
For EU-27 the established and estimated amounts
in OWNRES represent 1.73% of the collected TOR for 2011. The percentage varies
between the Member States and between the years.

(7) 
The Commission encourages Member States to
continue their activities in the field of recovery and to provide required
statistical information. The Budgetary Authority is entitled to have available
the best possible information when monitoring TOR and recovery issues.

PART III -
EXPENDITURE

4.           PRESERVATION
AND MANAGEMENT OF NATURAL RESOURCES (AGRICULTURE AND FISHERIES)

4.1.        Agricultural
expenditure (Annexes 17-22)

The Common Agricultural Policy (CAP) has been
one of the most important common policies over the years, as a large part[34] of the European Union's (EU)
budget is spent in the agricultural sector.

The CAP-objectives for the coming years is an
agriculture that is competitive on world markets, which respects very strict
standards on environment, food safety, and animal welfare, within a framework
of a sustainable and dynamic rural economy.

The agricultural expenditure is financed by 2
funds:

· 
EAGF

· 
EAFRD

The European Agricultural Guarantee Fund (EAGF)
finances direct payments to farmers and measures to regulate agricultural
markets such as intervention and export refunds, while the European
Agricultural Fund for Rural Development (EAFRD) co-finances the rural
development programmes of Member States.

The EU-budget for the year 2011 was about EUR
126.5 billion. Approximately EUR 55.5 billion was spent in the agricultural
sector, of which EAGF and EAFRD expenditure account for respectively EUR 43.3
billion and EUR 12.2 billion. Annex 17 provides a detailed overview of the
agricultural expenditure concerning the financial years 2004-2011.

The basic rules for the financial management of
the Common Agricultural Policy (CAP) can be found in Council Regulation (EC) No
1290/2005.

The Commission retains overall responsibility
for the management of EAGF and EAFRD but does not make payments to the
beneficiaries. Member States make the payments to the beneficiaries. This takes
places under the principle of shared management. Member States are not only
responsible for making payments to the beneficiaries. Member States are also
obliged to prevent and deal with irregularities and to recover amounts unduly
paid. Granting subsidies, setting up audit strategies, performing audits,
reporting irregularities and recovery of unduly paid amounts go hand in hand.

Commission Regulation (EC) No 1848/2006 obliges
Member States to report irregularities. Member States submit their irregularity
reports via IMS Module 1848. Module 1848 was introduced in 2008 and was
directly used by all Member States. It is a web based application that can be
accessed via internet. Access via internet led to an enormous increase of the
number of users of Module 1848. The total number of users increased from less
than 50 in 2008 to more than 1,000 in 2011.

The data provided by Member States via Module
1848 is used for performing risk analysis as described in article 10 of
Regulation No 1848/2006[35]
and to inform the Advisory Committee for the Coordination of Fraud Prevention
(COCOLAF) as described in article 9 of Regulation No 1848/2006[36].

The agricultural section of this report
contains three parts: reporting year 2011, reporting years 2004-2011 and
financial years 2004-2006. The first part contains an overview of new cases
reported during 2011, Member States compliance with the reporting obligations
and the recovery of unduly paid amounts. In the second part are the trends and
developments in the agricultural sector described on basis of the cases
reported during the years 2004-2011. The third part contains definitive
figures, based on the analysis of the financial years 2004-2006 which years,
from an irregularity reporting point of view, are considered to be finalised.

Four preliminary remarks need to be made
concerning the outcomes of the analysis:

(1) 
A higher number of cases reported does not
necessarily mean that more irregularities are committed or that a Member State
is more vulnerable for irregularities. A more developed audit strategy, tailor
made audits, higher number of performed audits, better trained or instructed
auditors and so forth will normally lead to a higher number of detected irregularities.
In other words, it is possible that Member States with a higher irregularity
rate perform far better than Member States with a lower irregularity rate;

(2) 
Audit plans and programmes are still running for
the period 2007-2011. This means that cases of irregularities still can be
detected and reported, which could have a direct impact on the figures. The
figures concerning the financial years 2007-2011, therefore, need to be seen as
a half-time-result[37].

(3) 
Not all irregularities have to be reported.
Member States must only inform OLAF of irregularities involving more than EUR
10 000. It is also good to bear in mind that 87% of the number of payments,
representing 21% of the total expenditure, concern amounts below EUR 10 000
which implies that for these payments normally no irregularities will be
reported[38].

(4) 
Analyses are based on data provided by Member
States and are nothing more as descriptive analysis as they illustrate the main
features of a collection of data in quantitative terms.

4.2.        Reporting
Year 2011

4.2.1.     Reporting
Year 2011: cases reported

Table NR1 provides an overview per Member State
of the number of cases of irregularities reported, the amounts affected and
Member States' classification of the irregularities into "suspected
fraud" or "established fraud"[39].

Table NR1: cases reported during Financial Year 2011

Member States reported 2 395 new cases of
irregularities with a total amount affected of about EUR 178 million. These
cases concern expenditures for the financial years 1995-2011. Italy reported
the highest number of cases (590) as France reported the highest amounts
affected (EUR 71.6 million).

France reported 2 suspected fraud cases with a
total amount affected of more than EUR 65 million, which had a huge impact on
the total amount affected by suspected fraud cases[40].

The number of cases that have been reported as
fraudulent (suspected fraud or established fraud) is 139 (121 + 18), which is
6% of the total number of cases reported. The amount affected is 43% of the
total amounts affected. The "fraud cases" are mainly reported by
young Member States, especially Bulgaria (37), Poland (20) and Romania (25).
Italy reported 16 fraud cases.

4.2.2.     Reporting
Year 2011: reporting discipline

The main purpose of submitting irregularity
reports is to enable the Commission to perform risk analyses. For that purpose,
OLAF needs to receive reliable, consistent and complete data and as early as
possible (timely!).

Table NR2 provides an overview of the
compliance rate per reporting obligation. Member States are ranked in order of
their overall 2011 compliance rate, which can be found in the fifth column from
the right hand side.

Table NR2: compliance per Member State

The compliance rate has been determined on
basis of the reporting obligations as stipulated in article 3, paragraph 1,
letters a - p of Reg. 1848/2006. The focus is 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.

In 2011, the overall compliance rate[41] increased from 90% to 93%.
Most Member States stabilized or improved their compliance rate during 2011.
Finland made a big step forward in 2011 by increasing its compliance rate from
59% to 75%. For Finland as well as Poland count that the reporting of personal
data should still get more attention. Timely reporting is still an issue for a
large number of Member States but especially for Denmark, United Kingdom,
Cyprus, Hungary and the Netherlands.

4.2.3.     Reporting Year 2011: financial follow up
of irregularity cases [42]

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 EU 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. Moreover, since 2008, Member States are required to off-set
any outstanding debts against future payments to the debtor (compulsory
compensation).

Undue payments that are the result of
administrative errors committed by the national authorities have to be deducted
from the annual accounts of the paying agencies concerned and, thus, excluded
from EU financing.

In the year 2011, the 50/50 mechanism was
applied by the financial clearance decision for the financial year 2010  on all
pending non-recovered cases dating from 2006 or 2002 (cases that were four or
eight years old respectively). EUR 27.8 million was charged to the Member
States in this way and EUR 29.2 million was borne by the EU budget for reasons
of irrecoverability (out of the EUR 50.7 million declared irrecoverable by the
Member States, EUR 21.5 million had already been cleared under the 50/50 and,
therefore, the loss is shared between the EU and the Member States). A further
EUR 0.6 million has been charged to the Member States in early 2012 by
subsequent decisions that cleared the accounts for financial year 2010 of those
paying agencies that were disjoined in April 2011.

During financial year 2011 Member States
recovered from the beneficiaries EUR 172.7 million and the outstanding amount
still to be recovered from the beneficiaries at the end of that financial year
was EUR 1 206.9 million. Table NR3 on the right hand side provides an overview
of the recovered, irrecoverable and outstanding amounts at the level of
beneficiaries at the end of financial year 2011.

The financial consequences of non
recovery for cases dating from 2007 or 2003 was determined in accordance with
the 50/50 rule mentioned above by charging approximately EUR 12.6 million to
the Member States concerned . Moreover, EUR 25.7 million was borne by the EU
budget for cases reported irrecoverable during financial year 2011.

Due the application of the 50/50 mechanism
since its introduction in 2006 important non-recovered sums have already been
charged to the Member States for EAGF expenditure (EUR 458 million).
Consequently, out of the EUR 1 206.9 million to be recovered from the final
beneficiaries at the end of financial year 2011 the amount outstanding towards
the EU budget is limited to EUR 943.5 million. As regards the recovery of undue
payments financed by the EAFRD, it has to be noted that the 50/50 rule will
only commence being applied after the closure of the rural development
programmes.

The new clearance mechanism (50/50 rule)
referred to above provides a strong incentive for Member States to recover
undue payments from the beneficiaries as quickly as possible. As a result, by
the end of financial year 2011, 44% of the new EAGF debts from 2007 and
thereafter had already been recovered, which is a significant improvement
compared to the past. See table NR4 on the right hand side.

During the years 2008-2011 the Commission was
auditing the correct application of the new clearance mechanism through 18 on
the spot controls in 13 Member States. In general, the Member States'
authorities have adequate procedures in place to protect the financial interest
of the European Union. Deficiencies found during these on the spot controls are
being followed up in the context of conformity clearance procedures. The
diligence of the Member States' authorities in the recovery of the most
significant irregularity cases is assessed in the context of a further 19
conformity clearance procedures.

4.3.        General
trends

This paragraph provides an overview of trends
and developments concerning the reporting years 2004-2011.

First, an overview is given of the expenditures
for the financial years 2004–2011, followed by the cases of irregularities
reported during the same period. These cases of irregularities do not only
relate to the expenditures concerning the financial years 2004-2011 but also to
expenditures of the financial years 1990–2004. Cases of irregularities are
normally detected and reported some years after the expenditure due to for
instance audit plannes which spread audits over the years and due to the type
of support measures[43].

Important to reiterate is that a higher number
of cases reported not necessarily means that more irregularities are committed.
It is even possible that Member States with a higher irregularity rate perform
better than Member States with a lower rate.

4.3.1.     Reporting
Years 2004-2011: expenditure

Chart NR5 provides an overview of the total
expenditure for the reporting years 2004–2011. The amounts are indicated in EUR
billion.

Chart NR5: expenditure 2004-2011

Chart NR5 shows
that from 2007 onwards the expenditure increased with about EUR 2 billion per
year. Annex 17 provides a more detailed overview per Member State. France is
the Member State with the highest expenditure. It spent more than EUR 78
billion which is on average approximately 20% of the total agricultural budget.
Malta is the Member State with the lowest expenditure and spent approximately
65 million which is about 0.02% of the total agricultural expenditure.

France, Spain,
Germany and Italy together are responsible for almost 60% of the total
agricultural expenditure. Spain and Germany had an expenditure of respectively
EUR 52 billion and EUR 51 billion which is approximately 13% of the total
expenditure. Nine Member States had an expenditure smaller than 1% of the total
agricultural expenditure.

4.3.2.     Reporting
Years 2004-2011: cases of irregularities

Member States reported 17,758 cases of
irregularities during the reporting years 2004–2011. The total amount affected
by these irregularities is EUR 918 million.

Chart NR6 provides per reporting year an
overview of the number of cases of irregularities reported and the amounts
affected.

Chart NR6: cases of irregularities and amounts affected (2004 –
2011)

A strong downfall can be noticed in 2007
and 2008. This strong downfall can be explained by the CAP-reform
"decoupled direct aids" and the introduction of a new and higher
threshold under which no irregularities have to be reported[44].

Chart NR6 also shows that the cases of irregularities and the
amounts affected increased from 2009 onwards. This trend can be explained by a
higher agricultural expenditure, the introduction of IMS in 2008, the strong
growth of IMS-users over the last years and efforts made by Member States and
Commission to increase the quality of irregularity reporting.

The peak of the amounts affected by
irregularities in 2011 is caused by two French cases with a total amount
affected of about EUR 65 million. Both cases concern one specific fraud which
should already have been reported in the period 2001–2003. These two cases led
to a distorted picture for the year 2011[45].
If these two cases would be left aside, the total amount affected would be
approximately EUR 120 million which is in line with the years 2009 and 2010.

Remarkable is that the number of cases of
irregularities reported by the top three spenders decreased. France, Germany
and Spain report less and less cases. Chart NR7 visualises this downfall.

Chart NR7: cases reported by France, Spain and Germany

France, Germany and Spain were in 2004
still responsible for the reporting of more than 60% of the total number of
cases. That percentage decreased over the years to less than 20% although their
part in the total expenditure stayed more or less at the same level.

4.3.3.     Reporting
Years 2004-2011: cases of irregularities reported as fraudulent

Member States reported during the reporting
years 2004–2011 in total 1,211 cases of suspected fraud. The total amount
affected by these cases is EUR 244 million. Chart NR8 provides per reporting
year an overview of the number of cases reported and amounts affected.

Chart NR8:irregularities reported as fraudulent

From 2004 till 2007 included  the number
of cases and amounts affected increased. In 2008 a downfall, due to CAP-reform
and higher reporting threshold, and then again an increase of the number of
cases and amounts affected till 2010.

In 2011, a downfall of the number of
cases can be seen and an increase of the amounts affected. However, the
increase of the amounts affected by irregularities reported as fraudulent is
caused by the above already mentioned two French cases with a total amount
affected of about EUR 65 million[46]. 
If these two cases would be left aside, the amount affected by cases of
irregularities reported as fraudulent would also have decreased.

Remarkable is that especially the new Member
States and Italy report fraudulent cases. Poland reported with 297 cases the
highest number, followed by Italy with 279 cases. Other Member States with high
number of cases reported as fraudulent are Bulgaria, Romania and Hungary with
162, 101 and 63 cases respectively. No such cases were reported by Luxembourg
and Malta.

The top three spenders (France, Spain and
Germany) reported 52, 49 and 20 cases respectively, which is about 10% of the
total number. To recall, the total expenditure of the top three spenders is almost
50% of the total agricultural budget. On basis of their part in the
expenditure, a higher number of irregularities reported as fraudulent could be
expected.

The sectors most affected by irregularities
reported as fraudulent are rural development, decoupled direct aids and other
direct aids. These sectors were indicated in respectively 637, 363 and 113
cases, which is more than 90% of the total number of cases of irregularities
reported as fraudulent. Annex 18 provides for all sectors an overview of the
number of cases and the amounts affected.

The number of
irregularities reported as fraudulent in which the sector rural development was
mentioned is more than 50% of the total number of suspected fraud cases.

Most applied modus operandi in the sector rural
development is overdeclaration of land. Table NR10 provides an overview.

Table NR10: sector rural development - Modus Operandi top 7

Member Sates indicated for 262 cases of
irregularities reported as fraudulent that the applied modus operandi was overdeclaration
of land. Striking is that 260 cases are reported by Bulgaria and Poland with
respectively 67 and 193 cases. The other 2 cases were reported by France and
Italy. This does not mean that overdeclaration does not take place in other
Member States. Other Member States also reported cases of overdeclaration but
did not reported their cases as fraudulent.

The reported cases
concerning overdeclaration of land can be roughly subdivided into 4 categories:

1.       simple
overdeclaration caused by calculation or measuring errors;

2.       intentional
overdeclaration by overcalculating or overmeasuring;

3.       overdeclaration
by declaring land not suitable or eligible for support;

4.       declaration
of non-owned land.

ad 1. simple
overdeclaration

This type is
caused by a simple calculation or measuring error due to for instance the shape
of the land. It concerns normally small differences. The beneficiary is not
aware that too many square meters were declared. These cases are normally
classified as "irregularity".

ad 2. intentional
overdeclaration by overcalculating or overmeasuring

Overcalculation or
overmeasuring was done intentionally by adding extra square meters to the total
or by measuring for self-benefit in order to get a higher financial support.
The beneficiary is aware of the fact that he is declaring more square meters.
These cases are normally classified as "suspected fraud".

ad 3.
overdeclaration by declaring land not suitable or eligible for support

Beneficiary
includes in his declaration also land that is not suitable or eligible for
support. The land is owned by the beneficiary but does not fulfil the
conditions. Beneficiary is aware of the fact that not all declared land is
suitable or eligible but has the attitude "let's try" or "let's
see if they notice it".  These cases are normally classified as
"suspected fraud".

Example:
beneficiary owns 100 hectares of land of which 25 hectares are eligible for
aid. He declares a surface of 75 hectares.

ad 4. declaration
of non-owned land

Beneficiary
includes in his declaration also land that is owned and used by a third person.
This could be land that is suitable or eligible for financial support but also
land that is not suitable or eligible for financial support. The risk of double
payment exists now also the legitimate owner could apply for financial support.
These cases are normally classified as "suspected fraud".

Example:
beneficiary receives financial support for agricultural activities in less
favoured areas. The land was not owned by the beneficiary but leased. A lease
contract was included in the documentation that was handed over when the
financial support was requested. An audit learned that no lease contract
existed between the owner of the land and beneficiary. The land was also still
farmed by the owner.

Member States indicated in 449 cases concerning the sector rural
development that the Modus Operandi was overdeclaration. As already mentioned
above, 262 cases were committed intentionally thus reported as fraudulent. 28
of these cases have already been confirmed by Court' decisions. 187 cases were
reported as non-fraudulent.

Table NR11 provides an overview how Member States classified cases
of overdeclaration concerning the sector rural development.

Table NR11: classification of cases of overdeclaration

The impression is that Member States do
not interpret and classify cases of overdeclaration in the same way. The latter
was reason to put the classification of cases of overdeclaration on the agenda
of the meeting "irregularities and mutual assistance – agricultural
products" of April 2012. Commission and Member States discussed on basis
of a case study the classification in order to harmonize the interpretation and
classification of cases. Prior to the meeting, Member States were asked to
interpret the facts and to analyse and to classify the case. Member States'
interpretation of the facts led to different classifications. It proved that
Member States do not interpret and classify cases in the same way. Especially
the question if an irregularity has been committed intentionally or not led to
different opinions and positions. The discussion will certainly get a follow up
in order to harmonise the process of irregularity reporting.

In addition has to be mentioned that Member States did not classify
some of their cases as suspected fraud although penal sanctions were imposed or
penal procedures were started. Member States explanations for not classifying
such cases as suspected fraud vary between "simple mistake" and being
afraid for consequences (in private!) in case of a wrong classificiation. In
some Member States, civil servants can be held in person liable for their acts.

4.4.        Specific
analysis

To present reliable rates and levels, a time
frame should be used that can be considered as "finalised". The financial
year 2011 cannot yet be used to calculate final rates as a large number of
cases concerning the financial year 2011 will be reported in the coming years.
Irregularities, fraudulent as well as non-fraudulent, are normally reported
within a period of two and three years after a subsidy has been granted. This
implies that also the financial years 2008-2010 cannot be considered as
finalised. In addition, some cases are reported with some delay, which implies
that cases concerning the financial year 2007 can also still be expected,
therefore, the financial years 2007–2011 should be considered as still "on
going".

The financial years 2004-2006 can be considered
as finalised[47].
Member States had set up audit strategies and audit plans and performed audits
on basis of these strategies and plans. Audit findings have become definitive
and irregularities have been reported. In addition, the 50/50 mechanism was
applied by the financial clearance decision for the financial year 2010 on all
pending non-recovered cases dating from 2006 or 2002 (cases that were four or
eight years old respectively)[48].

Chart NR12: course of cases of irregularities

The course of the number of cases of
irregularities  reported, non-fraudulent as well as fraudulent, concerning the
expenditures of the financial years 2004-2006 enforces the assumption that all
or almost all cases have been reported for the financial years 2004-2006. Chart
NR12 demonstrates the course of the reported cases for the expenditures of the
financial years 2004-2006. The thick blue line indicates the course of the
reported cases of irregularities not reported as fraudulent concerning the
financial years 2004-2006. In 2006, Member States reported 1 513 cases of
irregularities concerning the expenditures of the financial years 2004–2006.
The smooth light blue line is a trendline that indicates a downfall to zero in
2013. In other words, some cases can still be expected but the expectation is
that these cases will not have a huge impact on the overall figures.

The red line indicates the number
irregularities reported as fraudulent. The course of the red line follows the
same pattern as the blue line (non-fraudulent cases of irregularities), only a
bit later in time. The latter is caused by the fact that cases of irregularities
reported as fraudulent are, in general, reported slightly later than other
cases of irregularities. Apparently, Member States devote more care on cases of
irregularities reported as fraudulent. Also for this type of cases counts that
it can be expected that no more cases or almost no more cases will be reported
for the financial years 2004-2006.

4.4.1.     Financial
Years 2004-2006: cases of irregularities reported as fraudulent

This paragraph will focus on the fraud rates
for the financial years 2004-2006. The rates will be provided per Member State
and per financial year. To avoid an overload of information, tables with
detailed information on expenditure, cases of irregularities reported as
non-fraudulent, cases of irregularities reported as fraudulent and the
irregularity and fraud rates per Member State and per financial year are
provided in annexes 19-22 and served as basis for the analysis hereunder.

Table NR 13 provides per Member State an
overview of the expenditures for the financial years 2004–2006, number of
beneficiaries and the cases of irregularities reported as fraudulent. Member
States are ranked on basis of their expenditure. France had the highest
expenditure, thus, on top of the table.

Table NR13:
number of beneficiaries and number of fraudulent cases

The total expenditure for the financial years
2004-2006 was almost EUR 141 billion. The total amount affected by
irreguluarities was more than EUR 253 million which implies an Irregularity
Rate (IrR) of 0.18%.

Member States classified 642 cases
(=165+267+210) as fraudulent out a total of 6,079 cases of irregularities
concerning the expenditures of the financial years 2004-2006, which implies a
Fraud Frequency Level (FFL) of 10.20%.

The total amount affected by fraudulent cases
is almost EUR 60 million, which implies a Fraud Rate (FrR) of 0.04% and a Fraud
Amount Level (FAL) of 22.35%.

The 642 cases of irregularities reported as
fraudulent were reported by 16 Member States which implies that no suspicion of
fraud occurred in 9 Member States. In other words, for 9 Member States counts
that none of the irregularities was committed intentionally.

Striking are the sometimes huge differences
between Member States. Italy and Poland had respectively 285 and 265 cases of
irregularities reported as fraudulent while the top three spenders (France,
Spain and Germany) together reported 36 cases.

In general counts that the number of cases of
irregularities reported as fraudulent is low, in total as well as per Member
State, especially when it is brought in relation with the number of
beneficiaries. France granted in the period 2004-2006 subsidies to respectively
638 664, 583 600 and 547 548 beneficiaries.

France reported for the financial year 2004, on
a total number of 638 664 beneficiaries, one case of suspected fraud, which
implies a Fraud Frequency Level – Beneficiaries (FFL-B) of 0.0002%. The FFL-B
is for the financial years 2005 and 2006 respectively 0.0009% and 0.0018%.
These levels are soo low that it could be considered as negligible. The latter
does not only count for France but for all Member States.

In a positive approach this would mean that
beneficiaries comply for almost 100% with the conditions set by the regulations
and that there are almost no beneficiaries that commit fraud or, to say it in
other words, that there are almost no beneficiaries that are aware or should be
aware of the fact that they commit irregularities.

In order to be complete, table NR 14 provides
an overview of the EU-25 rates and levels per year for the period 2004-2006.
The last column contains the average for the whole period.

Table NR14: rates and levels[49]

The irregularity rate (IrR), fraud rate
(FrR) and fraud amount level (FAL) are decreasing in the period 2004-2006.
However, the fraud frequency level (FFL) is increasing. The latter is logic now
the total number of cases of irregularities reported decreased and the cases of
irregularities reported as fraudulent increased.

4.5.        Conclusions

(1) 
Approximately 44% of the EU-budget was spent in
the agricultural sector, of which EAGF and EAFRD account for respectively EUR
43.3 billon and EUR 12.2 billion.

(2) 
IMS Module 1848 is used by all Member States and
the number of users increased from approximately 50 in 2008 to more than 1 000
in 2011.

(3) 
A higher number of cases of irregularities
reported does not necessarily mean that more irregularities are committed or
that a Member State is more vulnerable for irregularities. A more developed
audit strategy, tailor made audits, higher number of performed audits will
normally lead to a higher number of detected irregularities. Therefore, it is
possible that Member States with a higher irregularity rate perform better,
either in substance or in their reporting, than Member States with a lower
irregularity rate.

4.5.1.     Reporting
Year 2011

(4) 
The EU-27-compliance-rate-2011 increased from
90% to 93%. Finland and Poland improved  the compliance rate for thereporting
of personal data to respectively 67% and 58%.Timely reporting is still a
problem for a large number of Member States.

(5) 
Member States reported 2 395 new cases with a
total amount affected of about EUR 178 million. These cases concern
expenditures for the years 1995-2011. Italy reported the highest number of
cases (590) as France reported the highest amounts affected (EUR 72 million). 6
cases had a total amount affected of more than EUR 1 million. Luxembourg had no
cases of irregularities to report.

(6) 
Member States reported 139 out of 2 395 cases as
fraudulent, which is 6% of the total number of reported cases and 43% of the
total amounts affected. These cases are mainly reported by Italy and young
Member States as Bulgaria, Poland and Romenia. 6 Member States did not report
any of their cases as fraudulent.

(7) 
The number of cases of irregularities and the
amounts affected are not equally spread over and within Member States.

(8) 
Member States recovered during the year 2011
about EUR 173 million and declared irrecoverable about EUR 49 million. The
overall outstanding amount at the end of Year 2011 is about EUR 1.2 billion.

(9) 
The new clearance mechanism (50/50 rule)
provides a strong incentive for Member States to recover undue payments from
the beneficiaries as quickly as possible. As a result, by the end of year 2010,
44% of the new EAGF debts from 2007 and thereafter had already been recovered,
which is a significant improvement compared to the past.

4.5.2.     Reporting
Years 2004-2011

(10) 
The figures concerning the years 2004-2011 can
be used to identify trends. These figures should be considered as
half-time-result now still cases of irregularities will be reported for the
years 2007-2011 and, to a smaller extent for the years 2004-2006. Definitive
figures can only be determined of years that can be considered, from an
irregularity reporting point of view, as "finalised".

(11) 
The total expenditure for the years 2004-2011
was about EUR 396 billion. The highest expenditure was made by France (20%) and
the lowest by Malta (< 0.1%). Member States reported for these years 17,758
cases of irregularities with a total amount affected of about EUR 918 million
which implies a provisional irregularity rate of 0.23%.

(12) 
Cases of irregularities reported as fraudulent
are not equally spread over and within the 27 Member States. Poland and Italy
are together responsible for almost 50% of the total number of these cases.
Germany has with 20 cases a rather low number.

(13) 
Sectors for which most cases of irregularities
reported as fraudulent  were notified are: rural development, decoupled direct
aids and other direct aids. Most frequently used Modus Operandi is
"overdeclaration of land".

(14) 
Member States interpret the term
"fraud" diffently.

4.5.3.     Financial
Years 2004-2006

(15) 
The years 2004-2006 can be considered as
finalised now audit plans have been executed, recovery procedures have been
started and irregularities have been reported.

(16) 
The total expenditure for the years 2004-2006
was about EUR 141 billion. Member States reported in total 6,079 cases with a
total amount affected of about EUR 279 million, which implies an EU-25
irregularity rate of 0.18%.

(17) 
Member States classified 642 of the 6,079 cases
as fraudulent. 550 cases (86%) were reported by 2 Member States: Italy and
Poland. The other 92 cases were reported by 14 Member States. 9 Member States
did not classify any of their cases as suspected-fraud or established.

(18) 
The irregularity and fraud rates are very low.

(19) 
The number of beneficiaries that committed fraud
is very low, almost negligible.

4.6.        Fisheries
(Annex 23)

Council Regulation (EC) No 1198/2006
establishes the European Fisheries Fund (EFF) and defines the framework for EU
support for the sustainable development of the fisheries sector, fisheries
areas and inland fishing.

The European Fisheries Fund (EFF) shall
contribute to realising the Common Fisheries Policy (CFP) objectives, which
specifically consist of ensuring the conservation and sustainable use of marine
resources. In order to achieve this, the Fund shall provide financial support
aimed at:

· 
ensure the long-term future
of fishing activities and the sustainable use of fishery resources;

· 
reduce pressure on stocks by matching EU fleet
capacity to available;

· 
promote the sustainable development of inland
fishing;

· 
help boost economically viable enterprises in
the fisheries sector and make operating structures more competitive;

· 
foster the protection of the environment and the
conservation of marine resources;

· 
encourage sustainable development and improve
the quality of life in areas with an active fishing industry;

· 
promote equality between
women and men active in the fisheries sector.

The EFF provides for five priorities: measures to adapt the EU fishing fleet,
aquaculture, inland fishing, processing and marketing, collective action,
sustainable development of fishing areas and technical assistance.

4.6.1.     Financial
framework

The EFF has a budget of
€4 304 million for the period 2007-13. Over that period the
Commission proposes to allocate on average €615 million per year to the
Member States who have decided to benefit from EFF aid (all the Member States
except for Luxembourg).

The amounts are divided between the Member
States according to the size of their fisheries sector, the number of people
working in the sector, the adjustments considered necessary for the fishing
industry and continuity of the measures in hand.

Except for certain expenditure incurred by the
Commission that is 100% covered by the EFF, the maximum contribution of the EFF
is always calculated as a proportion of the total sum of all public
expenditure. It varies according to the priority of the initiative and will be
higher for the regions and Member States covered by the new "convergence"
objective under the Structural Funds. The intensity of public aid
authorised for each operation financed also varies according to the same
parameters.

The Regulation sets the rules governing
eligibility of expenditure, financial management, financial corrections,
budgetary appropriations and reimbursement. It establishes a Committee of the
European Fisheries Fund to assist the Commission in managing the EFF.

4.6.2.     Management,
monitoring and control

Each Member State must
appoint the following bodies before requests for payment can be submitted:

· 
a managing authority for the
programme to select and monitor initiatives to be financed;

· 
a certification authority to
verify that expenditure complies with EU rules;

· 
an audit authority to verify
the proper functioning of the managing and certification authorities;

· 
a monitoring committee, which
a representative of the Commission participates in for advisory purposes and
which assesses progress in reaching the objectives of the operational
programme.

4.6.3.     Irregularities
affecting the EFF reported in 2011

Chapter VIII of Commission Regulation (EC) No
498/2007 of 26 March 2007[50]
lays down detailed rules for the implementation of Regulation (EC) No 1198/2006
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.

In 2011 Member States reported 48
irregularities, of which 2 were reported as fraudulent. These two cases were
reported by Germany and Poland for a total financial volume of about EUR 30
000.

The violations linked to these two cases were
categorised as ‘False or falsified supporting documents’ and ‘Expenditure not
legitimate’.

The remaining 46 irregularities not reported as
fraudulent involve EUR 1.6 million. Spain has reported the largest share of
these irregularities (23, for EUR 1.2 million involved), followed by Poland (19
for about EUR 300 000 involved).

The most frequent type of reported irregularity
was ‘Absence of declaration’ followed by ‘Not eligible expenditure’.

Annex 23 provides a complete overview by Member
State.

5.           COHESION
FOR GROWTH AND EMPLOYMENT (Annexes 24-28)

5.1.        Introduction

Since 1986, the objective of cohesion policy
has been to strengthen economic and social cohesion. The Lisbon Treaty and the
EU's new high-level strategy (Europe
2020) introduce a third dimension: territorial cohesion.

This topic has been under discussion since the
early 1990's, and with each new country that joins the EU, the need to pay
attention to the evolution of the European territory becomes more acute.

The programmes financed under the policy for cohesion
for growth and employment (Cohesion Policy) are implemented during several
years known as programming periods.

For the current programming period 2007-2013,
the cohesion policy focuses on three main objectives:

· 
Convergence – solidarity among regions: its aim is to [51]

· 
Regional Competitiveness and Employment: its [52]

· 
European territorial cooperation (ETC): its aim is to encourage cooperation across borders
- be it between countries or regions – that would not happen without help from
the cohesion policy. In financial terms, the sums concerned are negligible in
comparison with the other two objectives, but many countries and regions would
like to see that change in future. All regions are concerned.[53]

Three funds support the activities financed under
the Cohesion Policy. Chart SF1 shows which fund supports which objective.

Chart SF1: Objective, Structural Funds and instruments 2007-2013

5.2.        Irregularities
reporting

The legal provisions setting the reporting
obligation for the Cohesion Policy are contained in three different
regulations. Regulation (EC) No 1681/94 which covers the four Structural Funds[54] for all programming periods
until 2000-2006 included; Regulation (EC) No 1831/94 on the Cohesion Fund, with
the exception of the period 2007-2013); and Regulation No 1828/2006, which
covers the programming period 2007-2013. Annexes 25 to 28 provide details about
the irregularities reported under the different regulations.

While Regulations Nos 1681/94 and 1831/94 are
almost identical in content, rules have changed for the programming period
2007-2013, for which derogations have been widened and reporting requirements
simplified, in particular in relation to the updates of the information
concerning recovery.

In the following paragraphs, when referring to
irregularities reported in 2011, it should be kept in mind that, conformly to
the reporting obligations, Member States shall notify irregularities within two
months folliwing the end of each quarter. Therefore the “reporting period”
goes, in fact, from 1st March 2011 until 29 February 2012.

5.3.        Reporting
Discipline

Thanks to the introduction of IMS, the
timeliness, quality and completeness of reported information is satisfactory in
general. Only France has not entirely completed its preparations (but started
reporting through IMS nonetheless), but it is expected to do so in the course
of 2012.

Minor inconsistencies are still noticed in the
classification of the irregularities, as it still happens that an irregularity,
whose described modus operandi is ‘false or falsified supporting
documents’ is not classified as ‘suspected fraud’ as it would be expected.
However, these these inconsistencies involve less than 1% (29 on 3 880) of the
reported irregularities.

Lastly, still a significant number of
irregularities (about 38%), lacks the indication of the period in which the
irregularity took place, while for the date of establishment of the
irregularity important improvements have been made (less than 4% missing).
Therefore all Member States are requested to pay more attention to the
reporting of the period in which the irregularities took place.

5.4.        General
trends

Annex 24 shows the overall trend of the
reported irregularities by year. In 2011 the number of notified irregularities (both
reported as fraudulent or not) and the related financial amounts involved
decreased in relation to 2010, by 45% and 21% rispectively.

The main reasons for this significant decrease
are linked, in particular, to the “neutralisation” of the “acceleration” to the
reporting of irregularities following the introduction of the IMS; to a general
improvement in the management and control sytems; and to the cyclical effect of
the closure of the programming period 2000-2006 (with increased control
activities in the latest years of its implementation) and the consequent
contraction as the programmnig cycle 2007-2013 is implemented in a progressive
way.

Accordingly to these decreases, also the impact
on the overall resources allocated to the Cohesion Policy in the 2011 budget
has been decreasing from 3.15% to 2.43%.

However, it should be kept in mind that
reported irregularities refer to programmes and projects that are of a
multi-annual nature and they refer to four different programming periods.
Furthermore, the budget for the year 2011, on which the impact of
irregularities reported by the Member States has been calculated, is indicating
the resources allocated to the fifth year of the programming period 2007-2013,
while only a part of the reported irregularities is referred to it.

This implies that a correct estimation of the
impact of irregularities (fraudulent and non-fraudulent) on the part of the
European budget dedicated to the Cohesion policy is possible only through an
analysis by programming period. Paragraph 5.5 deals with these types of
analysis.

Similarly to previous years, also in 2011 the
ERDF and the programmes related to the objective ‘Convergence (ex-objective 1
for the period 2000-2006) show the highest number of irregularities and related
irregular amounts.

For the first time, irregularities related to
the programming period 2007-2013 have been the most numerous, as showed in
Table SF 1. Irregularities concerning the older programming periods are still
notified, including four reported as fraudulent[55]

Table SF1:
irregularities reported in 2011and irregularities reported as fraudulent by
programming period

The countries having reported the highest
number of irregularities in 2011 were the Poland, Spain, Italy, Portugal,
United Kingdom, Greece and the Czech Republic (all having reported more than
275 irregularities). The highest irregular amounts were reported by the Greece,
Italy, Czech Republic, and Poland (all above EUR 100 million). Annexes 25, 26,
and 28 detail the number of irregularities and related amounts reported by
Member State under the different programming periods and funds.

Table SF1 also shows the Fraud Frequency Level
(FFL) and the Fraud Amount Level (FAL), that is to say the percentage of the
notified irregularities and of their related amounts which have been reported
as fraudulent. These shares are quite stable across the years and show average
values of 9.2% for the FFL and 13.3% for the FAL for the period 2001-2011[56].

On the basis of this estimation, the FrR[57] of the Cohesion Policy is 0.46%
of the 2011 budget for this policy area, with a significant decrease in
relation to 2010, when it was 0.74%.

However, this projection on the EU budget does
not imply that these amounts turn out into a loss. In fact, as indicated in
Table SF2, 13% of the financial amounts involved have been prevented from being
unduly spent and, furthermore, those which were spent are referred to
behaviours potentially fraudulent which have been detected by national
authorities and for which recovery procedures are ongoing.

5.5.        Irregularities
reported as fraudulent

In 2011 276 irregularities were reported as
fraudulent by Member States[58].
Reported cases still refer to several programming periods, as showed in Table
SF 1. The number of irregularities reported as fraudulent and their related
amounts are decreasing in relation to the previous year (by 41% and 44%
respectively), as showed in Chart SF2, in line with the overall decrease
already highlighted in paragraph 6.2.

Chart SF2: irregularities reported as
fraudulent and related financial amounts – 2007-2011

The chart, depurated of its fluctuations, shows
a decreasing trend of the number of irregularities reported as fraudulent,
while their financial volume remains relatively high. This may point out to a
general improvement of the anti-fraud controls put in place by Member States,
able to target high risk sectors, involving higher amounts and, at the same
time better preventing fraud. The time series is too short to provide a
definitive conclusion in this sense, but it is a positive trend worth being
analysed also in the next years.

Table SF 2 shows the financial amounts involved
in the cases reported as fraudulent in 2011 in relation to the amounts
effectively disbursed. The difference between the two amounts shows the fraud
prevention capability of national systems.

Table
SF2: cases of suspected fraud reported in 2011, their financial value and its
part being paid out and the prevention rate by Member State

Poland, Germany and Italy were the countries
having notified the highest number of irregularities reported as fraudulent,
while Estonia, Lithuania, and Latvia are those which showed the highest fraud
prevention rate, with more than 80% of the involved amounts prevented from
being spent. However these rates are significantly affected by the low number
of irregularities reported as fraudulent by these countries and the low related
amounts.

5.5.1.     Types
of fraud by Fund

Table SF 3 indicates the distribution of the
suspected and established fraud cases by Fund. It should be kept in mind that,
as the cases refer to several programming periods, all concerned funds are
showed.

Table
SF3: cases of suspected fraud reported in 2011, their financial value and its
part being paid out and the prevention rate by Fund

ERDF shows the highest number of cases and
related financial volume, but also the highest prevention rate; the ESF also
presents quite a high number of cases, but the related amounts are much lower,
in line with the value of the projects supported by this type of fund. On the
other side, the Cohesion Fund presents the opposite situation, with a low
number of irregularities reported as fraudulent but high amounts involved.

The main violations concern the use of false or
falsified declarations, supporting documents or certificates (present in almost
47% of all cases), ineligible or not legitimate expenditure (20% of the cases),
ineligibility to receive the financial support (23% of the cases) or an
incomplete or non adequate execution of the projects (18%)[59]. Violations of the procurement
rules in connection with fraudulent cases are reported in almost 9% of the
cases, followed by irregularities (falsifications or other) in relation to the
keeping of the accounts (7%).

From the point of view of the amounts involved,
the violations related to the eligibility or the legitimacy of expenditure
concerns about 42% of the whole amounts involved (and 50% of those paid out),
followed by violations linked to procurement rules (33%); the use of false or
falsified documents, certificates or declarations interests about 39% of the
amounts (and 30% of those paid out).

Corruption has been reported in three (3)
cases, mainly in connection with violation of public procurement rules, for a
total amount of EUR 700 000 involved but the whole sum is indicated as being
prevented.

5.5.1.1.  ERDF

Irregularities reported as fraudulent in
relation to the ERDF mostly follow the pattern indicated above. The three
mentioned cases of possible corruption are related to this fund.

5.5.1.2.  ESF

The most recurring violation in relation to ESF
financed project is the use of  false or falsified supporting documents (41
cases on 96 – 43%). Other violations concern the keeping of accounts the
eligibility/legitimacy of the expenditure.

5.5.1.3.  Other
funds

For the Cohesion Fund, there is not an emerging
pattern, but the seven reported cases refer to different typologies of
violations committed, ranging from infringements linked to public procurement
rules, projects not completed, expenditure unjustified or not legitimate,
missing documents or use of false or falsified documents.

For the EAGGF – Guidance (programming period
2000-2006) the most recurrent violation is the use of false or falsified
documents (in 4 of the 8 cases reported as fraudulent), followed by the
falsification of accounts (2 on 8).

For the FIFG (programming period 2000-2006) the
only case reported as fraudulent concerns the use of false or falsified
expenditure.

5.5.2.     Irregularities not reported as fraudulent – Year 2011

In 2011 Member States reported 3 601
irregularities as non-fraudulent, involving some EUR 1.02 billion of irregular
financial amounts. The impact of these irregularities on the annual commitment
appropriations is about 2%, decreasing in relation to 2010 (2.4%). However, as
showed in Table SF4 these reported irregularities concern 4 different
programming periods, with the highest number related to the 2007-2013
programming cycle.

Table
SF4: irregularities not reported as fraudulent by programming period – year
2011

Table SF5 shows the distribution of these
irregularities not reported as fraudulent by Fund. As irregularities are
referred to several programming periods, all funds involved have been included.

Table SF5:
irregularities not reported as fraudulent by Fund – year 2011

Table SF6 shows the distribution of these
irregularities not reported as fraudulent by Member State. Countries that
benefit from the Cohesion Fund will, in principle, show a higher average amount
value.

Table SF6:
irregularities not reported as fraudulent by Member State – year 2011

The most recurrent types of infringements
linked to the irregularities not reported as fraudulent are consistent with
previous years' patterns and are mainly related to infringements of rules
concerned with public procurement (36% of the total number of irregularities
not reported as fraudulent and 47% of the related amounts) and to the
eligibility of expenditures (29% by number and 18% by amounts).

5.6.        Analysis
of the 2000-2006 Programming Period– cumulative data

A specific and detailed analysis of the
programming period 2000-2006 has already been performed in the Commission Staff
Working documents (CSWD) on statistical evaluation of irregularities accompanying
the Annual Reports for the years 2009 and 2010. Therefore, in the present
document only some summary tables will be included, to update the main figures
and indicators analysed in past years.

Similarly to the approach followed then, in
order to improve the comparability among the different Member States, the
irregularities referred to the Cohesion Fund are not included in relation to
the programming period 2000-2006, as an extensive analysis as been performed in
the CSWD accompanying the PIF Report 2010.

The analysis is adapted to follow the approach
of the present document, distinguishing between irregularities reported as
fraudulent and irregularities not reported as fraudulent.

5.6.1.     Irregularities
reported as fraudulent - programming period 2000-2006

5.6.1.1.  General
overview

Table SF7 summarises the main figures and
indicators related to the irregularities reported as fraudulent in relation to
the different funds.

Table SF7: Programming Period 2000-2006
– overall situation and main indicators by Objective

Data showed in Table SF5 differs only slightly
in relation to the same table published in last CSWD accompanyin the 2010 PIF
Report, indicating that a certain “stability” of the information has been
reached in relation to the programming period 2000-2006 and that the main
conclusions highlighted therein maintain their validity. They are summarised
below.

– 
Programmes to support regions falling within the
scope of the Objective 1 are those presenting the highest fraud rate, followed
by those related to the Objective 3. The irregularities reported as fraudulent
impact on 0.25% of the overall payments for the programming period 2000-2006.

– 
Concerning the Funds, ESF is the fund affected
by the highest number of irregularities reported as fraudulent, while the ERDF
shows the highest fraud rate with 0.28% of the total payments.

– 
Concerning the situation by Member State, Italy
remains the country with the highest number of irregularities reported as
fraudulent and the highest financial volume related to them, followed by
Germany, Poland, the United Kingdom and Portugal. An extremely low number of
fraudulent irregularities (in relation to the payments received from the
structural funds) has been detected and reported by Greece and France in
particular; other Member States having communicated no or few irregularities
reported as fraudulent are: Belgium, Denmark, Ireland, Malta, the Netherlandsand
Sweden, as showed in Table SF8.

Map SF1 displays the FrR by Member State,
highlighting the high values, in particular, of Italy, Poland, Latvia and
Luxembourg. The high FrR of these  Member States should be interpreted in a
positive way, rather than negative.

Good anti-fraud systems show, inevitably, bad
figures. By good anti-fraud system it is meant a system that does not only
detect fraud, putting in place adequate means and resources; but also duly
reports it according to the existing rules. These countries which show some
good results in terms of fraud detection should probably invest more resources
from the fraud prevention perspective.

Map SF1:
FrR by Member State

Table SF8:
Irregularities reported as fraudulent and Fraud Rate by Member State –
Programming Period 2000-2006

5.6.1.2.  Irregularities
reported as fraudulent –established fraud

The prosecution and adequate sanctioning of
fraudsters is one of the cornerstones of good anti-fraud systems, without which
no deterrence can be exercised against those who are guilty of such crime.

In relation to the programming period
2000-2006, Member States communicated the establishment of fraud in 203 cases (41
more than last year).

Table SF9 shows the number of cases of
established fraud per Member State and per fund.

Table SF9: N° of irregulariites reported as established fraud by
Member State and Fund – Programming Period 2000-2006

The highest number of cases of established
fraud concerns the ESF;Germany has been the State the most successful in
completing the related procedures (119 decision, from 100 in 2010), followed by
Poland (42 from 35), Italy (18 from 14) and the United Kingdom (12 from 7).
Information concerning new cases of established fraud was received from
Belgium, Estonia, Portugal and Slovakia.

In the greatest majority of cases, the use of
falsified supporting documents was the modus operandi adopted for
committing fraud.

The average amount affected by established
fraud cases is about EUR 200 000 for the cases related to ERDF, about EUR
42 000 for ESF and EUR 110 000 for EAGGF – Guidance.

5.6.2.     Irregularities
not reported as fraudulent – programming period 2000-2006

For the whole period 2000-2006, 24 236
irregularities were reported as non-fraudulent, involving an overall amount of
about EUR 3.8 billion, for an impact of 1.8% of the total payments
(Irregularity Rate).

Table SF10 shows the irregularities reported as
non-fraudulent, their related amounts and the impact on the payments by Fund.

Table SF10: Irregulariites
not reported as fraudulent and Irregularity Rate by Fund – Programming Period
2000-2006

Also in the case of irregularities not reported
as fraudulent the situation is rather stable in relation to the data published
in the CSWD accompanying the PIF Report 2010, which can be summarised as
follows:

– 
ERDF is the fund presenting the highest number
of irregularities reported as non-fraudulent, related amounts and irregularity
rate (2.3%).

– 
Objective 2 programmes have the highest
irregularity rate (2.7%), followed by the Interreg programmes (2.1%); the
Objective 1 programmes present an irregularity rate that equals the average (1.8%).

– 
The following Member States have an irregularity
rate significantly higher than the average: Luxembourg (5.6%), Slovakia (5.3%),
the Netherlands (4.6%), Slovenia (4.2%), Czech Republic (3.7%), Austria and the
United Kingdom (3.3%).

– 
The following Member States have an irregularity
rate significantly lower than the average: France (0.3%), Finland (0.5%),
Denmark and Sweden (0.8%).

5.7.        Analysis
of the 2007-2013 programming period - cumulative data

An important difference between the 2007-2013
and the 2000-2006 programming periods is the number of funds involved. In the
previous programming cycle, five European Funds were providing the resources
from the EU budget (ERDF, ESF, EAGGF – Guidance, FIFG and the Cohesion Fund),
while for the current period only three are involved (ERDF, ESF and Cohesion
Fund).

Also in terms of data available through the
reporting of irregularities, some differences are present. In particular, for
the current period the focus is much more on the irregularities reported as
fraudulent than fo those not reported as fraudulent. In the first case, Member
States are requested to submit also the potential fraud cases prevented, while
in the second case only reporting is obligatory only in relation to
irregularities for which expenditure has taken place and it has been certified
to the European Commission.

For this reason, in relation to the
irregularities reported as fraudulent a new indicator is introduced in the
analysis, i.e. the fraud prevention rate, which is calculated on the basis
of the amounts which would have been disbursed had the irregularity not been
detected.

5.7.1.     Irregularities
reported as fraudulent – 2007-2013 programming  period

Table SF11 shows the irregularities reported as
fraudulent by Fund.

Table SF11: Irregularities reported as fraudulent and Fraud Rate by
Fund – Programming Period 2007-2013

The ERDF shows the highest Fraud Rate (0.71%)
but, at the same time, it is also the fund for which the preventive action by
Member States has given the highest results (67%). The overall fraud rate is
the double than for the 2000-2006 period, but also the overall prevention rate
is significant (59%), showing positive results in the fight against fraud
obtained through the investigative actions conducted by Member States.

From the perspective of irregularities reported
as fraudulent by Objective, the Convergence programmes show a fraud rate that
is significantly higher than the others but, at the same time, an important
prevention rate (59%) as showed in Table SF12.

Table SF12:
Irregularities reported as fraudulent and Fraud Rate by Objective – Programming
Period 2007-2013

Table SF13 presents the same information by
Member State.

Table SF13: Irregularities reported as fraudulent and Fraud Rate by
Member State – Programming Period 2007-2013

Some countries have not yet submitted any
irregularity reported as fraudulent and namely: Cyprus, Denmark, France,
Luxembourg, Malta.

The high fraud rate of the Czech Republic is
mainly due to a single case which involves an extremely high amount. Even
without that case, however, the fraud rate would remain the highest in the EU.
This situation is anyhow balanced by the high prevention rate, meaning that
only a part of the involved amounts are effectively disboursed and need to be
recovered.

Some Member States show very high fraud
prevention rates, and in particular Spain, Estonia, Lithuania, Latvia, Sweden,
the Netherlands, and the Czech Republic. With the exception of the latter,
however, the number of reported cases is still too low to draw defninitive
conclusions in this respect.

Data concerning the fraud prevention rate are
visualised on Map SF2.

Map SF2: Prevention
rate by Member State

5.7.2.     Irregularities
reported as non-fraudulent – programming  period 2007-2013

Table SF14 shows the irregularities not
reported as fraudulent by Member State, presenting also, for terms of
comparison, the received payments and the resulting net-irregularity rate.[60].

Table SF14: Irregularities not reported as fraudulent and Irregularity
Rate by Member State – Programming Period 2007-2013

For most Member States the irregularity rate is
higher than for the previous programming period, though the overall result is
lower. This confirms that the introduction of IMS, the simplification of the
rules for irregularity reporting and the efforts made by the Commission and
national services in the Member States is paying off, as the situation looks
more homogeneous than in the previous programming period.

Differently from the previous period and
consistently with the analysis of the irregularities reported as fraudulent for
the 2007-2013 cycle, the highest rates are related to the programmes within the
Convergence objective.

5.7.3.     Recovery

For the 2007-2013 programming period, Member
States are obliged to provide the Commission with clear and structured data on
the amounts withdrawn from co-financing before the national recovery is
finalised and the amounts effectively recovered from beneficiaries at national
level. This information is showed in annex 27.

5.8.        Conclusions

5.8.1.     Analysis
of irregularities reported in 2011

(1) 
The completeness and accuracy of irregularity
reporting keep on improving and the introduction of IMS is playing an important
role both on the quality and quantity of the reported irregularities. The
Commission is grateful to all Member States having successfully implemented the
system for their continuous efforts to improve the quality of their reports and
encourages France to complete their preparation for a full exploitation of the
system. The improvements are particularly evident in relation to the reporting
of irregularities for the programming period 2007-2013.

(2) 
In 2011, Member States have detected and
reported 3 880 irregularities, involving an overall amount of EUR 1.22
billion. Reported irregularities and related financial amounts have been
significantly decreasing in comparison with 2010 (45% by number of cases and 21%
in financial volume). The main reasons for this decrease is the
“neutralization” of the cyclical increase due to the closure of the programming
period 2000-2006 and of the implementation of the new reporting system IMS,
which has produced an acceleration in reporting in 2010, absorbed in 2011.

(3) 
Similarly to the overall trend, also
irregularities reported as fraudulent and their related amounts have
significantly decreased in 2011 in relation to 2010, rispectively by 41% and
44%.

(4) 
ERDF and ESF remain the funds with the highest
number of irregularities reported as fraudulent. Poland, Germany and Italy have
submitted the highest number of irregularities reported as fraudulent.

(5) 
The main violations concern the use of false or
falsified documents (supporting documents, certificates, declarations). This is
the most used instrument to either to try and inflate the costs of the project
or to prove a (non-existing) right to obtain the financial support. Violation
of public procurement rules is also an important infringement reported in
relation to fraudulent cases. Corruption has been detected in three cases.

5.8.2.     Programming
Period 2000-2006

(6) 
All main conclusions established in the CSWD
accompanying the 2010 PIF Report maintain their validity.

(7) 
Italy, Poland, Latvia and Luxembourg present the
highest Fraud Rates among Member States. A higher number of irregularities reported
as fraudulent does not necessarily mean that more irregularities or fraud are
committed or that a Member State is more vulnerable to them. A more developed
audit or anti-fraud strategy, tailor made audits, higher number of performed
audits or investigations will normally lead to a higher number of detected
irregularities and fraud. Therefore, it is possible that Member States with a
higher irregularity or fraud rate perform better tan Member States with a lower
irregularity or fraud rate.

(8) 
An extremely low number of fraudulent
irregularities (in relation to the payments received from the structural funds)
has been detected and reported by Greece and France in particular; other Member
States having communicated no or few irregularities reported as fraudulent are:
Belgium, Denmark, Ireland, Malta, the Netherlandsand and Sweden. A low fraud
rate concerns also Spain. These results could indicate either a lower fraud
detection capability or the fact that a part of detected fraud may remain
unreported.

(9) 
Germany is the most successful Member State in
completing procedures for the establishment of fraud in relation to the
programming period 2000-2006, followed by Poland and Italy.

5.8.3.     Programming
Period 2007-2013

(10) 
In comparison with the previous period the
amounts related to irregularities reported as fraudulent are higher. However a significant
fraud prevention rate is also emerging from the analysis of data. This may
suggest that anti-fraud controls are more targeted and focused on high risk
areas. This trend needs, anyhow, to be strngthened by future data.

(11) 
Most Member States show very high fraud
prevention rates, and in particular Spain, Estonia, Lithuania, Latvia, Sweden,
the Netherlands, and the Czech Republic. With the exception of the latter,
however, the number of reported cases is still too low to draw defninitive
conclusions in this respect.

(12) 
Programmes most affected by irregularities are
those implemented under the Convergence objective.

(13) 
Some countries have not yet submitted any
irregularity reported as fraudulent and namely: Cyprus, Denmark, France,
Luxembourg, Malta.

6.           Pre-accession
funds (Annexes 29-30)

The descriptive statistical analysis presented
hereinafter relates to the developments in the area of enlargement and
assistance provided to enhance administrative capacities during the
pre-accession period for candidate countries and to assist in the fulfilment of
the Copenhagen criteria for EU membership.

The forthcoming analysis is limited to the
programmes implemented under decentralised management subject to irregularity
reporting obligation established by Financing Agreements and other relevant EU
legislation. It mainly covers the programming period 2000-2006, though some
information is also referred to the financial perspectives 2007-2013.

Agenda 2000[61]
set up two financial mechanisms, ISPA[62]
and SAPARD[63],
to complement the actions of the PHARE[64]
programme, which has been the EU aid programme for the EU-12[65] 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 which is regarded as post-accession
assistance.

Croatia benefits from several types of
pre-accession assistance like Community Assistance for
Reconstruction, Development and Stabilisation (CARDS) (2001-2004), PHARE and ISPA (2005-2006) as well as SAPARD (2006). It is the only country subject to
reporting CARDS[66]
irregularities since 2006[67].

Turkey has been receiving pre-accession
assistance since 2002[68].
The financial support provided falls under two periods: 2002-2006 - Turkish
Pre-accession assistance (TPA) with a total allocation of EUR 1 249
million and 164 projects and 2007-2013 – Instrument for
Pre-accession Assistance (five components) with a total
allocation of EUR 4 873 million.

Since 1st January 2007 EU pre-accession
assistance has been channeled through a single Instrument for Pre-accession
Assistance (IPA)[69]
designed to deliver support for candidate and potential candidate countries. The
preliminary allocation for IPA country programmes in the period 2007-2013 is
EUR 8.4 billion (in 2010 – EUR 1.6 billion).

6.1.        Reporting
discipline

In general the communications received via IMS
are complete. Some mistakes can be still encountered in relation to the
financial aspects of the reports, but the level of completeness of the reported
information is close to 100% for all countries. Also in terms of timeliness the
reporting behaviour is satisfactory.

The improved completeness of the information
allows now for some assessment of the data quality. Here some inconsistencies
are still detected, concerning dates related to the irregularity or to its
detection or to the correct assessment of the irregularity (fraudulent /
non-fraudulent).

6.2.        General
Trends

The following analysis intends to provide an
overview of the reported irregularities in 2011 and to compare the reporting
trends observed during the period 2002 -2011.

In 2011, 247 irregularities were reported on
pre-accession funds (PHARE, SAPARD, ISPA, Transition Facility (TF), CARDS, Turkish
pre-accession instrument - TPA) from the Member states
and Candidate countries.

The total European contribution amount affected
by irregularities in 2011 (programming period 2000-2006) was EUR 58.5 million.
For the 2007-2013 period, in 2011 20 irregularities were reported involving EUR
1.3 million.

Annexes 29 and 30 provide more details about
the information above, distinguishing also by Fund.

6.2.1.     Overall
trend

A word of caution before presenting the general
trends is necessary, considering that a wider variety of pre-accession
instruments is covered due to different programming periods; that the ongoing
enlargement process now addresses different beneficiary countries; and that
Member states and Candidate countries do not necessarily have the same approach
towards reporting.

In fact, reporting countries happen to be at
different stages of the project cycle. The EU-10 group has finalised the
projects and reports very few new cases, the focus, however, remains on
administrative and judicial follow-up. The EU-2 group reports a significant
number of newly detected cases which certainly affect the overall tendency.
Turkey has been reporting consistently, while Croatia shows a significant
decrease of irregularities reported, probably due to delays in the
implementation of the IMS; FYROM has been reporting its first irregularities[70].

The number of reported irregularities has
continued decreasing by another 37% in relation to 2010 and by 30% in amounts.

6.2.2.     Irregularities
reported as fraudulent

6.2.2.1.  Irregularities
reported as fraudulent in relation to Pre-Accession Assistance (2000-2006)

SAPARD remains the fund for which the highest
number of irregularities reported as fraudulent are received (38 on a total of
47). Table PA1 shows the distribution of such irregularities and their related
amounts per Fund.

Table PA1:
Irregularities reported as fraudulent by Fund – Pre-Accession Assistance

Table PA2 shows how these irregularities are
distributed by Beneficiary Country.

Table PA2:
Irregularities reported as fraudulent by Beneficiary Country – Pre-Accession
Assistance

Poland has reported the highest number, while
the most significant financial amounts affected by such fraudulent
irregularities were detected in Bulgaria. In comparison with previous years,
overall figures are decreasing for all countries but Poland.

Concerning SAPARD, the types of infringements
detected mainly concern the violation of rules for public procurement
proceedings, funding from different public sources which exceeded the maximum
allowed, failure to meet the criterion of access to the aid and lack of
necessary documents, the use of falsified supporting documents, and in
particular falsified offers. A case involving conflict of interest was also
identified. Three cases were investigated by OLAF.

Chart PA1 shows the type of entities involved
in the irregularities reported as fraudulent in relation to SAPARD.

Chart PA1: Type of entity involved in the irregularities reported as
fraudulent

The three ISPA irregularities reported as
fraudulent concern Bulgaria. One of them stems from an OLAF investigation. The
legal entities involved are three consortia and the violations mainly are
related to supporting documents (missing or incomplete).

The three cases relatad to the Pre-Accession
Facility for Turkey mainly concern false declarations (concerning works
performed or staff employed) and violation of public procurement rules. All
three cases involve local public bodies (municipalities).

The four cases related to PHARE all concern
Romania and are mainly linked to ineligible or unjustified expenditure. In two
cases public entities were involved, while in the other two one association and
to companies.

6.2.2.2.  Irregularities
reported as fraudulent in relation to the Instrument for Pre-Accession
(2007-2013)

The IPA component that was affected by the
highest number of irregularities reported as fraudulent is the Human Resources
Development, as showed in Table PA3.

Table PA3: Irregularities reported as fraudulent by IPA Component –
Instrument for Pre-Accession

The highest amounts, however, concern the Cross
Border component, due to an important case reported by Italy (see Table PA4).

Table PA4 shows how these irregularities are
distributed by Beneficiary Country. One of these concerns Italy, as the
Managing authority of the Cross Border cooperation programme is located there
and was directly involved in the irregularity.

Table PA4:
Irregularities reported as fraudulent by Beneficiary Country – Instrument for
Pre-Accession

The type of violations committed mainly concern
the use of false or falsified supporting documents and the violation of rules
concerning public procurement. The legal entities involved in these violations
are Corporations (in 3 cases), Limited Liability Companies, and Public bodies.

6.2.3.     Irregularities
not reported as fraudulent

6.2.3.1.  Irregularities
not reported as fraudulent in relation to Pre-Accession Assistance (2000-2006)

The 196 irregularities not reported as
fraudulent by the Beneficiary countries are distributed across the different
funds according to Table PA5.

Table PA5:
Irregularities not reported as fraudulent by Fund – Pre-Accession Assistance

Like in previous years, the majority of these
irregularities still concerns SAPARD, as visualised in Chart PA2.

Chart PA2:
Irregularities not reported as fraudulent by Fund – Pre-Accession Assistance

In line with previous years’ trends, the
majority of these irregularities were reported by Bulgaria and Romania, but
their numbers keeps on declining since 2009. Table PA6 shows the distribution
of these irregularities across the Beneficiary Countries.

Table PA6: Irregularities not reported as fraudulent by Beneficiary
Country – Pre-Accession Assistance

The majority of the violations concerned the
failure to respect contract conditions and the impossibility to complete the
financed action due to the insolvency of the beneficiary.

6.2.3.2.  Irregularities
reported as non-fraudulent in relation to the Instrument for Pre-Accession
(2007-2013)

Eleven irregularities were reported as
non-fraudulent in relation to four components, as showed in Table PA7.

Table PA 7: Irregularities not reported as fraudulent by IPA
Component – Instrument for Pre-Accession

The eleven irregularities were reported by two
countries, Croatia and Turkey, as showed in Table PA8.

Table PA 8:
Irregularities not reported as fraudulent by Beneficiary Country – Instrument
for Pre-Accession

The most recurring typologies of detected
irregularities were failure to respect contract conditions, violations of
public procurement rules and irregularities concerning the supporting
documentation.

6.2.4.     Recovery
for the Pre-Accession Assistance – Cumulative results 2002-2011

Recovery becomes a topical issue when the
project cycle is about to close. Administrative procedures (recoveries and
sanctions) together with effective prosecution are the cornerstones of fraud
prevention.

Once more, it is interesting to analyse the
reporting issue in relation to a whole programming period rather than on yearly
basis, as more recent years will always present recovery rates which are far
lower.

Table PA 9 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 on the irregular amounts effectively disbursed.

Table PA 9: Recovery
by Beneficiary Country, cumulative results – Pre-Accession Assistance

However, these figures reflect only the
information provided in the irregularity reports, but do not take into account
the recoveries and financial corrections made by the Commission.

6.3.        Conclusions

(1) 
In 2011 reported irregularities and related
irregular amounts confirmed the decreasing tendency already started in 2010.

(2) 
The decrease is visible for all funds and almost
for all beneficiary countries. The majority of the new detected and reported
cases are still related to the SAPARD fund.

(3) 
Recovery rate has significantly improved in
comparison with previous years and the cumulative results now indicate that
about 65% of the amounts unduly paid out has been recovered. The positive trend
concerns also the irregularities repoted as fraudulent.

7.           DIRECT
EXPENDITURE – CENTRALISED DIRECT MANAGEMENT

7.1.        Introduction

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’[71], 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.

For the analysis presented
in this chapter, however the following distinction will apply[72]:

– 
the category of
‘Irregularities reported as fraudulent’ comprises of  irregularities which
were notified to OLAF by the Commission services; and irregularities which have
not been reported as fraudulent by the Commission services, however whose
fraudulent nature could be derived on the basis of the analysis of the
information[73].

– 
on the other hand, ‘Irregularities
not reported as fraudulent’ are any other type of reported irregularities,
for which fraudulent nature has not been ascertained.

7.2.        Analysis
of irregularities reported as fraudulent

In 2011, the Commission services registered 922
recovery orders in ABAC that were qualified as irregularities. The committed
budget for these 922 recoveries was EUR 6.7 billion, of which EUR 51.4 million
was identified as irregular[74].

7.2.1.     Financial
amounts involved

Among the 922 recoveries registered in 2011, 24
recoveries have been qualified by the Commission services as suspected fraud
and subsequently reported to OLAF; and another 10 recoveries can be considered
as fraudulent; even if originally they have been qualified as simple
irregularities. The financial impact of these 34 recoveries accounts for EUR
1.5 million.

However, the recovery amounts should be
compared to the overall budget committed under the centralised direct
management, which corresponds to an average amount of EUR 10 billion per
financial year.

Table DE1 gives an overview of the financial
commitments[75]
related to recoveries recorded in 2011 by policy domain (‘internal policies’
and ‘external actions’) as well as of the number and financial amounts involved
in the recoveries.

Table DE 1:     Commitments
for which recoveries were issued in 2011 (number and amounts) by policy domain.

The table shows that the irregular amounts only
represent 0.8% of the value of the commitments concerned by the recoveries.
More recovery orders were issued for commitments made under the internal
policies domain than the external assistance actions, but the relative share of
recoveries in commitments is higher in the external actions area.

Table DE2 provides a more detailed
classification of the policy areas by budget headings. It gives information
only in relation to the budget headings where irregularities occurred. Yet,
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. Consequently, the information in this
table does not refer to the number of irregularities fraud per
Directorate General.

Table DE 2:     Recoveries (number and amounts) by qualification and
budget heading, 2011.

As it appears from the table, most of the
irregularities reported as fraudulent are linked to commitments made in the
area of external actions. The budget heading ‘Development and relations with
African, Caribbean and Pacific (ACP) states’ alone counts for almost one-third
of the number and exactly the half of associated amounts of recovery orders
that proved to be fraudulent. Moreover, the latter together with budget
headings ‘Enlargement’, ‘External relations’ and ‘Humanitarian aid’ count
already 76.5% of the recoveries and 82.4% of the recovery amounts qualified as
irregularities of fraudulent nature. Nonetheless, it should be pointed out that
the sum of recovery amounts in the ‘external action’ area is only EUR 1.2
million, whereas the related committed amount was EUR 1.7 billion in 2011.

When looking at the other irregularities not reported
as fraudulent, the area of external actions counts for 10.1% of the recoveries
and 35.9% of recovery amounts. On the other hand, in the internal policy area,
budget heading ‘Information society and media’ stands out with the highest
figures both in terms of number and amount. ‘Research’ comes to the second
place regarding the number, and third place (after ‘external relations’)
regarding the recovery amounts. Yet, it is to be noted that the very nature of
these areas imply the high number of contracts, and hence the higher number of
recovery orders. Moreover, the explanation for the relatively high number of
irregularities resides in the fact that Commission services duly detect and
report irregularities in ABAC.

7.2.2.     Recoveries
by geographic area and Member State

Table DE3 summarizes the recoveries per
geographical area, where the beneficiary of the EU funding resided.

Table DE 3:     
Recoveries (number and amounts) by region of residence and qualification, 2011.

This year almost all the recoveries qualified
as ‘irregularity reported as fraudulent’, related to beneficiaries residing
inside the EU and only two (one in Thailand and one in Turkey) appeared outside
of it. These 32 recoveries in the EU account for 95% of irregular cases
qualified as fraudulent both in number and in amount.

From the perspective of other irregularities
not reported as fraudulent, the number of beneficiaries residing in the
European Union is similarly the highest (86.4% of recoveries and 64% of the
recovery amounts), not surprisingly though, as the number of commitments and
the related committed amounts are also the highest for the EU in the direct
expenditure area.

The remaining 121 recovery orders (13.6%) were
issued to entities residing outside the EU, for a total amount of EUR 18.0
million (36.0%). In the latter category, the amount of recoveries relates to
entities in the ENP & Russia countries with total value of irregular amount
EUR 10.8 million, followed by beneficiaries residing in the EFTA states (5.5%
or EUR 2.7 million). Thirdly, the ACP countries as beneficiary residences count
for 5.3% of the irregularities or EUR 2.6 million irregular amounts.

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.

Table DE 4:     Recoveries (number and amounts) by Member State and
qualification, 2011.

Out of the 32 recoveries qualified as
‘irregularity reported as fraudulent’, more than two recoveries were issued to
beneficiaries residing in the following Member States: Spain (5 recoveries),
Italy (4 recoveries), Belgium, Germany, France, Poland and the United Kingdom
(3 recoveries each). The highest aggregate amounts involved in irregularities
of a fraudulent nature were recorded for beneficiaries residing in Italy,
Cyprus, France and Spain.

Substantially higher irregular recovery amounts
can be found in relation to qualifications ‘irregularity not reported as
fraudulent’. The highest aggregate recovery amounts in the latter category concern
beneficiaries registered in Italy, Spain, the United Kingdom, and Greece.
Although the aggregate recovery amounts are above EUR 4 million each, they are
related to numerous (in total 313) recovery orders.

7.2.3.     Method
of detection

For each recovery order, the Commission service
that issues the order has to indicate how the irregularity has been 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 and by qualification.

Table DE 5:     Recoveries
(number and amounts) by method of detection and by qualification, 2011.

Almost half of the ‘irregularities reported as
fraudulent’ was detected by OLAF: the 16 recoveries account for 47.1% of the
number and 39.0% of the recovery amounts. Secondly, ‘Community controls’ proved
to be the other efficient tool to discover irregularities. This means that in
2011, 70.6% of the number of irregularities that proved to be fraudulent and
87.0% of the related amounts were detected by ‘OLAF’ and ‘Community controls’.

The picture is slightly different in case of
‘irregularities not reported as fraudulent’. Though in this category too, it is
by means of ‘Community controls’ that most of the irregularities were found. In
the second place, it was ‘Independent control’ that discovered the second
highest number of irregularities with equally the second highest aggregate
recovery amounts.

7.2.4.     Types
of error

The Commission services also have to indicate
the type of error that was detected when the recovery order was issued. The
number of categories is relatively higher compared to e.g. the method of
detection, and the interpretation of these findings must be done with care as
several types of error may be attributed to one recovery. Consequently, Table
DE6 presents the number of occurrences and the related aggregate amounts a type
of error appeared when analysing the 34 recoveries that were qualified as
irregular and reported as fraudulent. This means that the figures presented
below are by no means equal to the number of actual recoveries and related
amounts recorded in 2011.

Table DE 6: Occurrence of types of error - qualification:
irregularity reported as fraudulent (number of occurrences and aggregate
amounts), 2011

For one-quarter of the recoveries qualified as
irregularity of a fraudulent nature, more than one type of error was indicated.
The above table, therefore points out how frequently a type of error occurred
and how much aggregate financial weight can be attributed to each of it.

The most frequently registered type of error is
‘Falsified documents’ followed by ‘Missing documents’. Thirdly, ‘Inappropriate
accumulation of aid’ appears also to be often marked as error regarding an
irregularity. These three types of error are registered for 58.9% of the
occurrences and 46.8% of the aggregate recovery amounts related to them.

Turning to other irregularities (not reported
as fraudulent) another pattern can be depicted. The type ‘Action not in
accordance with the rules’ occurs the most frequently, then secondly the type
'Expenditure not covered by legal base’ and thirdly ‘Public procurement
procedures not respected’. These types of error are signalled in 56.2% of the
occurrences to which 70.1% of financial weight is linked. Further high
occurrence can be found in relation to the following errors: ‘Incorrect rates
used in calculating the claim’, ‘Missing documents’ and ‘Calculation error’.

7.2.5.     Time
delay

For the recovery orders issued in 2011, which
were qualified as the ‘irregularity reported as fraudulent’, the average delay
between the occurrence of the irregularity and its detection is 4 years and 3
months. However, one-third of the cases were detected and reported shortly
after the irregularity was perpetrated. The method of detection, the type of
irregularity or the recovery amount does not seem to affect the time delay.

7.3.        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 or the
amount is offset from remaining payments.

Table DE 7:     Recoveries
in 2011 (number and amount) by payment status and qualification.

The recovery rate for recoveries qualified as
‘irregularity reported as fraudulent’ is 49.8%; meanwhile the rate for other
irregularities is higher: 64.4%. So far, 63.9% of the accepted recovery amounts
are cashed.

7.4.        Conclusions

The above analysis is based on the
irregularities detected in the expenditure managed by the Commission on a
centralised direct basis, as registered in the recovery context of the
Commission's financial system ABAC. However, the recovery context has only
started functioning in 2008.

It has to be also taken into consideration that
for the analysis of recoveries registered in year 2011, a revised methodology[76] has been applied.

Due to the fact, that year after year the
number of recovery orders issued change as well as the associated recovery
amounts, any comparison with previous year’s results can only be done with due
care.

Table DE8 gives, therefore, only an indicative
picture by placing this year’s rates in parallel with those of preceding years.

Table DE 8:     Summary table for 2011 – Fraud rates

(1) 
It is only a tiny part of the Commission
expenditures that is concerned by irregularities. The recovery orders issued in
2011 qualified as irregularities relate to 0.8% of the overall amounts paid by
the Commission. The recovery orders classified as ‘irregularities reported as
fraudulent’ are even lower and affect 0.02% of those payments. The aggregated
amount of the recovery orders issued in 2011 that proved to be irregular
represents 0.6% of the commitments (in relation to which irregularity was
detected) made by the Commission for internal policies and 1.1% for external
actions.

(2) 
34 recovery orders were found to be irregular
and of a fraudulent nature, which is higher than last year’s figure. However
their financial impact this year is smaller than in 2010. On the other hand,
the number of other irregularities decreased compared to the previous years by
a bit more than 10%, though the financial impact of them has risen by EUR 10
million.

(3) 
Most of the irregularities reported as
fraudulent are linked to commitments made in the area of ‘external actions’.
The sum of recovery amounts in that area is EUR 1.2 million. In the ‘internal
policy’ area, the budget heading ‘Information society and media’ stands out
with the highest figures both in terms of number and amount. ‘Research’ comes
to the second place.

(4) 
In the perspective of the geographical
distribution of irregularities (reported as fraudulent or not), almost all the
recoveries concerns beneficiaries residing in the European Union. Though,
similarly the number and value of contracts (commitments) are also the highest
for the EU in the direct expenditure area.

(5) 
Half of the ‘irregularities reported as
fraudulent’ was detected by OLAF. Furthermore, in line with the previous years,
the most frequent method of detection remains 'Community controls' regarding
both categories of irregularities (reported as fraudulent and other irregularities).

(6) 
In relation to irregularities for which
fraudulent nature is reported, the most frequently registered type of error is
‘falsified documents’ followed by ‘missing documents’ and by ‘inappropriate
accumulation of aid’. Whereas, other irregularities follow a different pattern:
here, the type ‘Action not in accordance with the rules’ occurs most
frequently, followed by type 'Expenditure not covered by legal base’ and
thirdly by ‘Public procurement procedures not respected’.

(7) 
For the recovery orders issued in 2011 and
qualified as fraudulent, the average delay between the irregularity and its
detection is 4 years and 3 months.

(8) 
The recovery rate for recoveries qualified as
‘irregularity reported as fraudulent’ is 49.8%; meanwhile the rate for other
irregularities is higher: 64.4%. So far, the Commission has already recovered
or offset 63.9% of the total recovery amounts related to recovery orders
(qualified as irregular) issued in 2011.

ANNEXES

ANNEX 1 – SUMMARY OF FINANCING OF THE
GENERAL BUDGET BY CLASS OF OWN RESOURCE AND BY MEMBER STATE, IN MILLION EUR

ANNEX 2 - EVOLUTION OF BUDGET PAYMENT
APPROPRIATIONS BY HEADING IN 2011 (IN MILLION EUR)

ANNEX 3 – NUMBER OF CASES OWNRES AND
AMOUNTS – PERIOD 2008-2011 PER MEMBER STATE

ANNEX 4 – OWNRES CASES PER MEMBER STATE

ANNEX 5 – IMPACT ON CUSTOM PROCEDURE FREE
CIRCULATION

ANNEX 6 – TOP 10 CHAPTER HEADINGS

ANNEX 7 – GOOD AFFECTED BY FRAUD AND
IRREGULARITY – PERIOD 2009-2011

ANNEX 8 – FRAUD AND IRREGULARITIES: BREAKDOWN
BY ORIGIN OF GOODS

ANNEX 9 – SEIZED AND CONFISCATED GOODS
(cigarette CN 2402 2090)

ANNEX 10 – PERCENTAGE CLASSIFICATION OF FRAUD PER MEMBER STATE 2009-2011

ANNEX 11 – AMOUNTS INVOLVED IN FRAUD PER
MEMBER STATE PERIOD 2009-2011

ANNEX 12 - METHODS OF DETECTION OF OWNRES
CASES – YEAR 2011

ANNEX 13 – CUSTOMS
PROCEDURES AFFECTED TO FRAUD AND IRREGULARITY IN 2011 – BASED ON ESTABLISHED
AMOUNTS

ANNEX 14

ANNEX 15 – RECOVERY RATE TRADITIONAL OWN
RESOURCES (RR)

Annex 16 – Administrative stage of all
closed cases from 1989 to 2011

*Other administrative
stages are: Remission procedure (Article 239(2) of Regulation No 2913/92 and
Article 905 of Regulation No 2454/93, Write-off procedure for non-recoverable
debts (Article 17(2) of Regulation No 1150/2000 and Non-establishment due to an
administrative error (Article 220(2) b of Regulation No 2913/92.v

ANNEX 17: AGRICULTURAL EXPENDITURE
FINANCIAL YEARS 2004-2011

ANNEX 18: REPORTING YEARS 2004–2011 –
cases of irregularities reported as fraudulent

ANNEX 19 FINANCIAL YEAR 2004 – detailed
figures on cases, amounts, rates and levels

ANNEX 20: FINANCIAL YEAR 2005 – detailed
figures on cases, amounts, rates and levels

ANNEX 21: FINANCIAL YEAR 2006 – detailed
figures on cases, amounts, rates and levels

ANNEX 22: FINANCIAL YEARS 2004–2006 –
beneficiaries and cases of irregularities reported as fraudulent

ANNEX 23 –
EUROPEAN FISHERY FUND

Irregularities reported under
Regulation (EC) No 498/2007 – Year 2011

- According to
article 55§1 Member States shall report any irregularity which have been the
subject of a primary administrative or judicial finding. The concept of
irregularity includes also cases of suspected and established fraud. The
qualification as fraud, meaning criminal behaviour, can only be made following
a penal procedure.

** According to
article 55§1, e), In that report, Member
States shall in all cases give details concerning, where appropriate, whether
the practice gives rise to a suspicion of fraud

ANNEX 24 – COHESION FOR GROWTH AND
EMPLOYMENT POLICY* - GENERAL TRENDS

IRREGULARITIES**
COMMUNICATED BY MEMBER STATES 2001-2011

- The table includes also
irregularities affecting the Cohesion Fund

**The concept of irregularity
includes also cases of suspected and established fraud. The qualification as
fraud, meaning criminal behaviour, can only be made following a penal
procedure.

ANNEX 25 - REGULATION No
1681/94: IRREGULARITIES REPORTED
IN 2011

STRUCTURAL FUNDS

A) NUMBER OF IRREGULARITIES BY MEMBER STATE AND BY FUND

B) AMOUNTS AFFECTED BY
IRREGULARITIES BY MEMBER STATE AND BY FUND

ANNEX 26 - REGULATION No
1828/2006: IRREGULARITIES REPORTED IN 2011

COHESION FOR GROWTH AND EMPLOYMENT

A) N° OF IRREGULARITIES BY FUND AND BY
MEMBER STATE

B) FINANCIAL VOLUME OF IRREGULARITIES BY
FUND AND BY MEMBER STATE

ANNEX 27 -
REGULATION No 1828/2006: RECOVERIES IN 2011

ANNEX 28 - REGULATION N. 1831/94:
IRREGULARITIES COMMUNICATED BY MEMBER STATES UNDER IN 2011

COHESION
FUND

ANNEX 29 - PRE-ACCESSION ASSISTANCE: IRREGULARITIES
REPORTED IN 2011

FINANCIAL
PERSPECTIVES 2000-2006

ALL
PROGRAMMES

A)
IRREGULARITIES REPORTED BY PROGRAMME AND BENEFICIARY COUNTRY

B) IRREGULAR AMOUNTS REPORTED BY PROGRAMME AND BENEFICIARY COUNTRY

ANNEX 30 - INSTRUMENT FOR PRE-ACCESSION: IRREGULARITIES REPORTED IN 2011

FINANCIAL
PERSPECTIVES 2007-2013

ALL
PROGRAMMES

A)
IRREGULARITIES REPORTED BY PROGRAMME AND BENEFICIARY COUNTRY

B) IRREGULAR AMOUNTS REPORTED BY PROGRAMME AND BENEFICIARY COUNTRY

ANNEX 31 - IRREGULARITIES REPORTED BY MEMBER STATES IN 2011

OWN
RESOURCES, AGRICULTURE, FISHERIES, AND COHESION POLICY,

[1]               This document cannot be considered as an official
position of the Commission.

[2]               Official Journal L 248 of 16.09.2002.

[3]               Amended by Council Regulation (EC, Euratom) No 1995/2006
of 13 December 2006 (OJ L 390 of 30.12.2006) and by Regulation (EC) No
1525/2007 of 17 December 2007 (OJ L 343 of 27.12.2007).

[4]               WOMIS: Write-Off Management and Information
System.

[5]               Thereof, 16 cases were non-admissible as write-off
cases: 5 cases from Belgium (EUR 808 553), 8 cases from Germany (EUR 747 897),
2 cases from Finland (EUR 183 770) and 1 case from the UK (EUR 141 453).

[6]               Thereof, 3 cases have been considered as
non-admissible from Germany involving EUR 1 775 024.

[7]               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) ) and 239 (special situation) of the Community Customs
Code, Articles 869 and 889 of Regulation No 2454/93..

[8]               See annex 3 (table) and annex 4 (chart).

[9]               Significant changes in amounts involved generally
relate to one or a few (very) big cases, e.g. Lithuania: case totalling to €15
million involving Tobacco products.

[10]             In 2007 the number of cases of belatedly discharged transit
was 1 399, being 22% of the total number of cases registered and 16% of the
total amount initially established. In 2008 there were 1 147 cases (18% of
cases and 13% of the amount), in 2009 there were 758 (14% of cases and 12% of
the amount). In 2010 the figures are respectively 974 (18% of cases and 16% of
the amount initially established). In 2011 there were 693 cases (15% of cases
and amount).

[11]             See annex 5.

[12]             Combined nomenclature or CN — nomenclature of the
Common Customs Tariff.

[13]             See annexes 6 and 7.

[14]             The product description in the chart is a generic
description of the goods involved. See Annexes 4 and 5 for detailed analysis.

[15]             See annex 8.

[16]             See annex 9.

[17]             For the definition of irregularity and fraud, see the
CSWD "Methodology".

[18]             See annexes 10 and 11.

[19]             Cyprus, Estonia, Latvia and Slovakia. Luxembourg did
not communicate any OWNRES case.

[20]             Germany (6%), France (7%), Netherlands (2%), Sweden
(4%), UK (3%), Czech Republic (2%) and Hungary (2%).

[21]             Spain (64%), Greece (96%), Slovenia (52%), Bulgaria (80%)
and Malta (100%).

[22]             For details see annex 12. Luxemburg did not register
any OWNRES case in 2011.

[23]             Germany (14%), Cyprus (11%) and the Czech Republic (21%).

[24]             See Annex 12.

[25]             Germany, Spain and Italy.

[26]             See annex 13.

[27]             One big case was detected in Lithuania.

[28]             See annex 14.

[29]             Member States which collected most TOR: Germany, United
Kingdom, Netherlands, Italy, Belgium, France and Spain

[30]             A thematic report on Member States' customs control
strategy synthesizing the results on the inspections carried out in 2009 and
2010 in all Member States was presented in the Advisory Committee of Own
Resources of July 2011.

[31]             This calculation is based on 68 510 cases, an
established amount of EUR 5 billion (after corrections) and a recovered amount
of EUR 2.5 billion.

[32]             See annex 15.

[33]             See annex 16.

[34]          Approximately
44% of the total 2011-budget was spent in the agricultural sector.

[35]            Art. 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.

[36]            Art. 9 Reg. 1848/2006: The Commission
shall every year inform the COCOLAF, of the order of
magnitude of the sums involved in the irregularities which have been discovered
and of the various categories of irregularity, broken down by type and with a
statement of the number of irregularities in each category.

[37]            Checks on aid applications are being
performed pre-payment. However, irregularities can also be detected ex-post
and, in that case, recovery procedures can be launched for at least four years
after the irregularity was committed (art. 3 Reg. 2988/95).

[38]            In the context of the clearance
mechanism (see also point 4.3.3.) Member States are reporting
all irregular payments to be recovered to DG AGRI, without any de minimis
threshold.

[39]            Established fraud means that it has been
proven in Court that it was fraud while suspected fraud implies that a penal
court still has to rule or that investigations are still on going.

[40]                Judicial authorities performed searches on the
premises of involved persons in 2003, first in Belgium, and later on in other
Member States including France. France reported these cases first in 2011 due
to the secrecy of the penal procedure, which was levied at that date. This reporting resulted in a
distorted image for the 2011 statistics especially due to the high financial
impact.

[41]            The compliance rate is based on a
quantitative analysis of data provided by Member States. A Member State is
being considered as compliant as soon as information has been provided. The
quality of the information is not taken into account.

[42]            The text, analysis and tables of this
paragraph are provided by DG AGRI.

[43]            Irregularities can be detected many
years after the granting of the support due to the conditions under which they are granted. The premium to compensate income losses (forestry) can
concern a period of 20 years from the date of first
afforestation;

[44]            The threshold under
which no cases of irregularities have to be reported increased from EUR 4 000
to EUR 10 000.

[45]                See footnote 41.

[46]                See footnote 41

[47]            In next years report, the financial year
2007 will be included in the analysis to determine the different rates and
levels.

[48]            Commission Decision 2011/272EU of 29
April 2011

[49]                IrR = amount affected by irregularities year n /
expenditure year n

FrR = amount affected by cases of
irregularities reported as fraudulent year n / total expenditure year n

FAL = amount affected by cases of
irregularities reported as fraudulent year n / amount affected by irregularities year n

FFL = number of cases of irregularities reported as fraudulent year n / number of cases of
irregularities year n

FFL-B = number of beneficiaries
involved in cases of irregularities reported as fraudulent year n / number of
beneficiaries year n

[50]             OJ L120, 10.05.2007.

[51]

[52]

[53]             Number of Europeans concerned: 500
million

Total amount: €
8.7bn (2.5% of total budget)

Type of projects
funded: shared management of natural resources, risk protection, improving
transport links, creating networks of universities, research institutes etc.

[54]             The four Structural Funds financing the Cohesion Policy
in the programming period 2000-2006 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 Fisheries Guidance
(FIFG), supporting measures for the adjustment of the fisheries sector and the
‘accompanying measures’ of the common fishery policy.

[55]             The four cases, concerning the programming period
1994-1999, were reported by Germany. two cases were classified as suspected and
two as established fraud.

[56]             In relation to 2010, the FFL value is fairly stable
(7.2% against 6.6%), while the FAL is decreasing (18.7% against 23.3%).

[57]             The definition of FrR is in the CSWD "Methodology for
the statistical evaluation of irregularities reported in 2011".

[58]             The Commission Staff Working Document "Methodology
for the statistical evaluation of irregularities reported in 2011"
specifies that, in relation to the Cohesion Policy, is considered
"irregularity reported as fraudulent" an irregularity that has been
classified as "suspected fraud" or "established fraud" by
the reporting Member State or "considered as possibly fraudulent" by
the Commission on the basis of the analysis provided in the irregularity
report.

[59]             It is important to keep in mind that more than one
violation can occur at the same time, and therefore the summing up of the percentages
presented under this paragraph will exceed 100%.

[60]             The net-irregularity rate takes into account exclusively
the irregularities not reported as fraudulent.

[61]             On 26 March 1999, at the
Berlin European Council, the Heads of Government or States concluded a political
agreement on Agenda 2000

[62]             ISPA
programme dealt with large-scale environment and transport investment support
in candidate countries.

[63]             SAPARD
programme has supported agricultural and rural development in candidate
countries.

[64]             PHARE 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.

[65]             The following abbreviations are used to describe groups
of countries:

a) EU-12 designates
all Member States having acceded the EU since 2004;

b) EU-10 indicates
Member States having acceded in 2004;

c) EU-2 refers to
Member States having acceded in 2007;

d) CAND identifies
candidate countries.

[66]             Community Assistance for
Reconstruction, Development and Stabilisation applied to Western Balkan
countries

[67]             Commission Decision PE/2006/148 of 07/02/2006
conferring management of aid provided under PHARE and CARDS to an Implementing
Agency in Croatia

[68]             European financial contribution in the framework of
pre-accession strategy was first granted to Turkey under Council Regulation
2500/2001.

[69]             Council Regulation (EC) No 1085/2006

[70]             Similarly to the Cohesion Policy, however, derogations
to the reporting obligations have also been widened.

[71]             In
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’).

[72]             Please
see section 3.2 on ‘Definitions applied in the analyses’ of the Working
document on Methodology regarding the Statistical Evaluation of Irregularities.

[73]             For
instance where the description of the modus operandi is related to the use of
falsified documents, or to inappropriate accumulation of aid, OLAF considers
the nature of these irregularities fraudulent.

[74]             The
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.

[75] For the calculation of commitments, see section 4.3 of the Working document on
Methodology regarding the Statistical Evaluation of Irregularities

[76] See Working document on Methodology regarding the Statistical
Evaluation of Irregularities