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SPECIAL REPORT No 3/2004

on recovery of irregular payments under the Common Agricultural Policy together with the Commission’s replies

(pursuant to the second subparagraph of Article 248(4) of the EC Treaty)

(2004/C 269/01)

CONTENTS

THE COMMISSION’S REPLIES

SUMMARY

INTRODUCTION

Table 1

Analysis of irregularities notified to the Commission since 1971

ANALYSIS

Reported irregularities

Table 2

Irregularities detected after payment and recovery rates (1971 to 2002)

Table 3

Trend in value of reported irregularities

Notification of irregularities: who does what?

Notification of irregularities: delays, gaps and inconsistencies

An Italian investigation agency reported a company for fraudulently obtaining CAP subsidies for processing tomatoes. The amount involved is 2,71 million euro. In fact the claims were made but never paid. There is therefore no debt.

Checks on data: unsatisfactory

Quality of information about irregular payments: incomplete and inconsistent

Recovery and writing off: responsibilities of Member States and the Commission

Low rate of recovery

Commission decisions on who should bear the cost of irregular payments which are not recovered: no clear principles

Live bovine animals for slaughter, exported to Poland with refunds in 1990, were misdeclared as pure-bred animals with resulting irregular payments in three cases of 2,6 million euro.These cases were excluded from a clearance-of-accounts financial correction in 1994 for similar cases pending the result of recovery action.In 1999 the Court of Justice upheld the Commission's financial correction. The Commission has since however failed to follow up the three cases excluded.

Division of responsibilities in the Commission

In the framework of the clearance of accounts for 1993, the Commission proposed to charge Germany 8,2 million euro for 21 cases where it considered Germany to have been negligent in its recovery action. The financial correction was however not implemented because of inadequate bilateral consultation.All but two of the cases were reconsidered for the 1995 decision and were charged to the EAGGF.The Commission has not documented the reasons for reversing its original proposal.

The Commission makes little use of its experience of irregularities

Table 4

Types of irregularity

Table 5

Detection methods

The blacklist

Recording of debts

CONCLUSIONS

RECOMMENDATIONS

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 10 June 2004.

For the Court of Auditors

Juan Manuel FABRA VALLÉS

President

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(1)  Member States estimated that 46 % of this amount was realistically recoverable

Source:OLAF ECR database

(2)  Council Regulation (EC) No 1469/95 of 22 June 1995 (OJ L 145, 29.6.1995, p. 1).

(3)  A further 1 144 million euro detected before payment (and unpaid) are also recorded in the ECR.

(4)  These figures should be treated with caution for the reasons detailed in paragraphs 21 to 32.

(5)  In practice OLAF.

(6)  Article 3 of Council Regulation (EEC) No 595/91 of 4 March 1991 (OJ L 67, 14.3.1991, p. 11).

(7)  Article 5(1) of Council Regulation (EEC) No 595/91 of 4 March 1991.

(8)  Article 5(2) of Council Regulation (EEC) No 595/91 of 4 March 1991.

(9)  Source: Paragraph 10.2 of the Annual Report for 2002 on the Protection of the Financial Interests of the Communities and the fight against fraud.

(10)  In 17 955 out of a possible 29 311 cases it is possible to establish the speed with which Member States notified irregular payments.

(11)  Article 3 of Council Regulation (EEC) No 595/91 of 4 March 1991 requires ‘the financial consequences of the irregularity to be reported’ and Article 5 ‘the judicial and administrative procedures instituted with a view to (...) applying sanctions’.

(12)  Source: paragraph 11.2 of the Annual Report for 2002 on the Protection of the Financial Interests of the Communities and the fight against fraud.

(13)  Article 8(1) of Council Regulation (EC) No 1258/1999 of 17 May 1999 (OJ L 160, 26.6.1999, p. 103).

(14)  Article 5(2) of Council Regulation (EEC) No 595/91 of 4 March 1991.

(15)  The Court of Justice ruled that Member States should respect the obligation of diligence which ‘implies that the Member States must take steps to rectify irregularities promptly’, adding that ‘with the passage of time, recovery of sums wrongly paid is likely to become more complicated or impossible for reasons such as the fact that the undertakings may have ceased trading or accounting documents may have been lost’.

(16)  Case C-34/89 of 11 October 1990, Italian Republic v Commission of the European Communities.

(17)  Special Report No 11/2000, paragraph 101 (OJ C 215, 27.7.2000).

(18)  Five files could not be found; four cases had been treated as being already covered by flat rate corrections and in one case the amount had been charged to the budget not to the Member State.

(19)  For example, bankruptcy or winding up orders.

(20)  There were reasoned arguments in eight of the 30 files examined.

(21)  This definition is derived from the judgment in European Court of Justice Case No C-34/89.

(22)  Commission Decision 2003/481/EC of 27 June 2003 (OJ L 160, 28.6.2003, p. 83).

(23)  This was the last of the annual decisions dealing with cases recommended for writing off by Member States.

(24)  Council conclusions on protection of the financial interests of the Communities and the fight against fraud 13244/1/02 REV 1 of 6 November 2002.

(25)  Report of the Committee on Budgetary Control on the Annual Report on the fight against fraud 2001, PE 315.805 of 3 March 2003.

(26)  COM(2002) 671 final of 3 December 2002.

(27)  The EAGGF (European Agricultural Guidance and Guarantee Fund) Committee and Irregularities Group are advisory bodies to the Commission. They are chaired by a Commission official and consist of representatives from Member States.

(28)  Article 2(3) of Council Regulation (EEC) No 595/91 of 4 March 1991.

(29)  Group ‘Irregularites and mutual assistance, agricultural products’, Regulations (EEC) No 595/91 of 4 March 1991 (OJ L 67, 14.3.1991, p. 11) and (EC) No 515/97 of 13 March 1997 (OJ L 83, 25.3.1997, p. 1).

(30)  Irregularities and Mutual Assistance - Agricultural Products, Regulations (EEC) No 595/91 and (EC) No 515/97.

(31)OJ C 230, 22.7.1998, p. 16.

(32)  Including irregularities and other amounts due, for example, irregularities less than 4 000 euro, official error, etc.

(33)  Article 3(6) of Commission Regulation (EC) No 296/96 of 16 February 1996 (OJ L 39, 17.2.1996, p. 5) as amended by Commission Regulation (EC) No 2761/1999.

(34)  Under heading VII (Short-term assets) B. (Current assets) 2. (Advances owed by Member States) (a) (EAGGF Guarantee).

(35)  Certifying bodies are appointed by Member States under the clearance-of-accounts procedures. They audit the CAP expenditure declared by Member States’ paying agencies and certify (or qualify) the accounts of such expenditure. The Commission takes account of these certificates in arriving at its annual financial decision to clear CAP expenditure.

(36)  As Table 105 was introduced with effect from 2000, the amounts incorrectly written off from the debtors’ ledgers in previous years will have to be established by Member States.

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ANNEX A

LIST OF CASES REPORTED WITH THE HIGHEST VALUES

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ANNEX B

WEAKNESSES IN PROCEDURES FOR RECORDING AND RECOVERING DEBTS

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(1)  Conclusions are based upon the Court's evaluation of the CB reports.

Source:Debtors’ section in Certifying Body reports for EAGGF year 2002.

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THE COMMISSION'S REPLIES

SUMMARY

INTRODUCTION

ANALYSIS

CONCLUSIONS

RECOMMENDATIONS

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(1)  See in particular Article 3(1) of Council Regulation (EEC) No 595/91 (OJ L 67, 7.3.1997), Commission Regulation (EC) No 1681/94 and (EC) No 1831/94 of 26 July 1994 (OJ L 191, 27.7.1994) for expenditure, and Article 6(5) of Council Regulation (EC, Euratom) No 1150/2000 for traditional own resources.

(2)  Except for Council Regulation (EC, Euratom) No 1150/2000 implementing Decision 94/728/EC, Euratom on the system of the Communities' own resources (OJ L 130, 31.5.2000), where this information is optional only.

(3)  See Article 8 of Regulation (EC) No 2988/95 (OJ L 312, 23.12.1995) and Article 8 of Regulation (EC) No 1258/1999 (OJ L 160, 26.6.1999).

(4)  As confirmed by the Court in the Zwartfeld and Yugoslav maize cases. Case C-2/88 [1990] ECR I-3365, 13.7.1990; Case C-68/88 Commission v Greece [1989] ECR 2965.

(5)  COM(2000) 358 final of 28 June 2000 and Action Plan 2001-2003 (COM(2001) 254 final of 15 May 2001).

(6)  Including the accounting and recovery aspects.

(7)  ‘The preliminary administrative or judicial report shall mean the first written assessment, even if only internal, by a competent administrative or judicial authority, concluding on the basis of concrete facts that an irregularity has been committed, deliberately or through gross negligence, without prejudice to the possibility of this conclusion being revised or withdrawn subsequently on the basis of developments in the administrative or judicial procedure.’ The same definition has been provided in different working documents among which the document ‘Obligations to notify irregularities: practical arrangements’ discussed with Member States in the XIXth meeting of Cocolaf on 11 April 2002.

(8)  Document VI/5330/97.

(9)  Special Report No 22/2000 on evaluation of the reformed clearance-of-accounts procedure (OJ C 69, 2.3.2001).

(10)  Belgium, Greece, Spain, Ireland, the Netherlands, Portugal.

(11)  Belgium, Germany, Greece, France, Italy, Netherlands, Spain, Portugal, United Kingdom.

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