# EUR-Lex - 52006SC0911 - EN

Important legal notice

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# 52006SC0911

**Commission staff working document - Annex to the Annual Report 2005 from the Commission on the Protection of the European Communities’ financial interests and the fight against fraud - Statistical Evaluation of Irregularities - Agricultural, Structural and Cohesion Funds, Own Resources and Pre-accession Funds Year 2005 {COM(2006) 378 final} /* SEC/2006/0911 */ **

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EN

Brussels, 12.7.2006

SEC(2006) 911

COMMISSION STAFF WORKING DOCUMENT

Annex to the

Annual Report 2005 from the Commission

on the

Protection of the European Communities’ financial interests and the fight against fraud

Statistical Evaluation of Irregularities

Agricultural, Structural and Cohesion Funds, Own Resources and

Pre-accession Funds

Year 2005

{COM(2006) 378 final}

TABLE OF CONTENTS

1. THE SITUATION IN 2005 (...)4

1.1. Introduction (...)4

1.2. Cases notified by the Member States (...)5

2. GENERAL ANALYSIS (...)6

2.1. TRADITIONAL OWN RESOURCES (TOR) (Annexes 1 and 2) (...)6

2.1.1. General analysis (...)6

2.1.2. Conclusions (...)6

2.2. AGRICULTURAL EXPENDITURE (Annexes 3, 4 and 5) (...)7

2.2.1. Reporting discipline (...)7

2.2.2. General analysis (...)9

2.2.3. Conclusions (...)12

2.3. STRUCTURAL MEASURES EXPENDITURE (Annexes 6, 7, 8 and 9) (...)13

2.3.1. Reporting discipline (...)13

2.3.2. General analysis (...)16

2.3.3. Conclusions (...)21

2.3.4. Reporting discipline (...)22

2.3.5. General analysis (...)24

2.3.6. Conclusions (...)30

3. SPECIFIC ANALYSIS: TRENDS (...)31

3.1. TRADITIONAL OWN RESOURCES (TOR) (...)31

3.1.1. Smuggling, misdescription and false declarations - important vehicles for fraud. (...)31

3.1.2. Cigarettes - still risky goods (...)32

3.2. AGRICULTURAL EXPENDITURE (EAGGF-Guarantee Section) (...)32

3.2.1. Measures involved (...)32

3.2.2. Types of irregularity (...)38

3.2.3. Detection method: controls based on Regulations 4045/89 and 386/90 (...)40

3.2.4. Irregularity versus suspected fraud (...)43

3.2.5. Penalties and interest (...)45

3.2.6. Recovery (...)45

3.2.7. Conclusions (...)46

3.3. STRUCTURAL MEASURES (...)47

3.3.1. Analysis of the irregularities reported (...)47

3.3.2. Types of irregularities (...)50

3.3.3. Irregularity versus suspected fraud (...)52

3.3.4. Irregularities detected before payment (...)54

3.3.5. Conclusions (...)55

3.4. PRE-ACCESSION FUNDS (...)55

3.4.1. Analysis of reported irregularities (...)56

3.4.2. Conclusions (...)58

4. FINANCIAL MONITORING AND RECOVERY SITUATION (...)58

4.1. Traditional Own Resources (...)58

4.1.1. Procedure for managing Member States' requests for write-off (...)59

4.1.2. Principle of Member States' financial responsibility for their administrative errors (...)60

4.2. AGRICULTURAL EXPENDITURE (Guarantee Section) (Annexes 3, 4 and 5) (...)60

4.3. Structural measures (Annexes 6, 7, 8 and 9) (...)61

4.4. Pre-accession funds (Annexes 11, 12, 13 and 14) (...)61

1. THE SITUATION IN 2005

1.1. Introduction

Community legislation provides for protection of the Community’s financial interests in all areas of activity [1]. Member States are required to notify the Commission of evidence of fraud and other irregularities. This need is particularly evident in those sectors of the Community budget where the main responsibility for management lies with the Member States, namely in the fields of Agriculture and the Structural Funds (on the expenditure side) and Own Resources (on the revenue side). In these areas, Member States must inform the Commission of all irregularities involving more than €4 000 in the case of Community expenditure or more than €10 000 for traditional own resources. This applies at all stages in the procedure for recovering monies unduly paid or not received.

Regulation No 595/91 specifies the requirement for the agriculture sector, Regulations No 1681/94 [2] and 1831/94 [3] for structural measures and Regulation No 1150/2000 for own resources. In the case of pre-accession funds, the obligation to report irregularities is laid down in Community legislation and in the Pre-Accession and Accession Agreements between the European Community and the candidate and accession countries.

Member States are required to report irregularities under Article 3 of these Regulations (for own resources the relevant provisions are contained in Article 6 paragraph 5 of Regulation No 1150/2000) within two months of the end of each quarter. Under Article 5 (and, again, Article 6, paragraph 5 for own resources) they have to submit updates of the cases communicated and relevant information about the financial, administrative and judicial follow-up.

The distinction between irregularities and fraud is that fraud [4] is a criminal act that can be determined only by the outcome of judicial proceedings. Consequently, the actual amount of fraud cannot be determined until the judicial procedure has come to an end. While awaiting the results, the Commission works on the basis of the information supplied by Member States concerning cases of irregularities some of which, in the opinion of the reporting Member States, give rise to suspicions of fraud. The Commission's statistical assessment of, and ability to respond to, irregularities depends on the accuracy and timeliness of the notifications made by the Member States.

The practices of the national administrations still vary, though improvements have been achieved thanks to the efforts made to harmonise their approaches. The data communicated by Member States is sometimes incomplete. Furthermore, the distinction between “suspected fraud” and other irregularities is not consistent, as Member States do not always apply the same definition of criminal risk. Consequently, a significant proportion of received communications by the Commission do not distinguish between suspected fraud and irregularity.

The Commission works in close cooperation with the Member States to improve the notification system for irregularities, in particular to clarify the concepts of “fraud” and “irregularity” [5] and as a result of this, a first attempt to measure the possible economic impact of fraud in certain sectors has been made. However, for the reasons outlined above, the figures presented below should be interpreted with caution. It would be particularly inappropriate to draw simple conclusions about the geographical distribution of fraud or on the efficiency of the services which contribute to the protection of financial interests.

1.2. Cases notified by the Member States

Annex 10 gives an overview of all irregularities communicated by Member States under Regulation No 595/91 for the agriculture sector, Regulations No 1681/94 and 1831/94 for structural measures and Regulation No 1150/2000 for Own Resources.

In general, the number of irregularities notified increased by 24% in 2005.

The total number of irregularities increased for Own Resources, the Structural Funds, PHARE and SAPARD. It decreased for the agriculture sector and the Cohesion Fund.

In general, the total amount affected by irregularities notified increased by 5% in 2005.

The total amount affected by irregularities increased for own resources, the agriculture sector, ISPA and PHARE. It decreased for the Structural Funds, the Cohesion Fund and SAPARD.

2. GENERAL ANALYSIS

2.1. TRADITIONAL OWN RESOURCES (TOR) (Annexes 1 and 2)

2.1.1. General analysis

Under Article 6(5) of Regulation 1150/2000, Member States are required to communicate to the Commission, via the OWNRES system, cases of fraud and irregularity whenever the amounts of TOR exceed €10 000.

On the basis of the OWNRES-data available (correct as on 6 April 2006), the following trends can be identified:

(a) The number of cases reported increased by 55%.

The number of communicated cases on detected fraud and irregularity (cases > €10 000) increased by 55% compared with 2004. This increase is due to the fact that some Member States have entered into OWNRES cases of undischarged transit operations that were subsequently but belatedly discharged. Therefore the mere increase of 55% does not justify any conclusion about the actual situation as regards fraud and irregularities.

In all, for the period from 1989 to April 2006, the OWNRES-database contains around 32 230 cases and about 60 250 communications including updates. This is also a big increase compared with last year, which mirrors the Member States’ efforts to complete their reporting retrospectively.

Compared with 2004, the number of cases communicated increased notably for nearly all of the new Member States. This is also due to the fact that the OWNRES-system has become more familiar to them. Regarding the EUR-15 Member States, there was an overall increase in 10 countries, in particular the Netherlands (+212%; probably due to the improved coverage of transit irregularities by the reporting system) and the United Kingdom (+102%) whereas the number of communicated cases decreased in Belgium (-25%), Denmark (-24%) Sweden (-11%) and Germany (-8%).

(b) The amounts at stake increased by 52%.

The consolidated communications in 2005 totalled €321 886 001 compared with €212 366 396 in 2004, an increase of 52% over 2004.

The amount recovered in 2005 was €87 420 092, equivalent to 27% of the total, compared with €54 751 893, also representing 27% of the amount recovered at the same time but for the previous year (the 2004 figures are €69 299 517 or 33% by now).

2.1.2. Conclusions

– The total number of irregularities increased by 55%;

– The total amount affected by irregularities increased by 52%.

2.2. AGRICULTURAL EXPENDITURE (Annexes 3, 4 and 5)

In 2005, Member States reported 3 193 irregularities under Regulation (EEC) No 595/91 compared with 3 401 irregularities in 2004. The total amount affected in 2005 was about €102 million, as against around €82 million in 2004. Irregularities notified in this sector are equivalent to only 0.21% of the agricultural budget. Annex 4 gives an overview per Member State, indicating the number of irregularities, the amounts involved and the percentage of EAGGF expenditure.

In the period 1971-2005, Member States reported 39 431 irregularities, involving €3 392 million. The total amount affected by irregularities detected before payment is approximately €255 million and after payment approximately €3 137 million. At the end of 2005 Member States still had to recover €2 102 million.

2.2.1. Reporting discipline

In 2005 OLAF processed almost 20 000 communications under Regulation (EEC) No 595/91. A large number of these communications were updates of cases that had been reported prior to 2005. The rather large number of communications can be explained by the “TFR-effect” (TFR = Task Force Recovery). The TFR has the task of closing all cases that were reported before 1999 and are still open. Due to the activities of the TFR, Member States have started to update information on irregularities. Unfortunately, this has not led to the closure of many cases.

In the 2004 Annual Report, the annex on the statistical evaluation of irregularities noted that the reporting discipline of Member States had improved in 2004, but also that further improvements were still necessary and that the level of compliance of a Member State seems to decrease as the total amount of support measures increases. This still holds true, but reporting discipline continued to improve in 2005. More Member States reported on time and the quantity and quality of the information improved. There is, however, still a long way to go.

During 2005 Member States received several information bulletins containing overviews of the communications submitted in the last quarter, feedback on the irregularities reported and recommendations to improve the reporting of irregularities.

The system of electronic reporting of irregularities introduced in 2001 for agriculture has led to an improvement in data quality and in the timeliness of reporting. It has also reduced misunderstandings and misinterpretations owing to linguistics and, consequently, improved compliance with the regulations.

The system of electronic reporting is, however, not used by all Member States. At the end of 2005 two Member States (Germany and Spain) were still not using the electronic reporting system. Between them, Germany and Spain account for almost 40% of the total number of cases reported (1 232 cases).

Member States should indicate the year of expenditure in their communications to make it possible to create a link between the budget year and the measures affected by the irregularity. In the case of the EAGGF, the budget year does not coincide with the calendar year. However, Member States actually report the year of expenditure in only approximately 39% of cases. Cyprus, Germany, Spain, the Netherlands and Portugal seldom report the year of expenditure.

(...PICT...)

One cause for concern is that Member States are reporting a relatively high proportion of cases (approximately 26%) in which the irregularity or fraud took place more than three (3) years ago, i.e. before 2002. Table A1 gives an overview. This is of particular concern as the chances of recovery decreases with time. Member States were unable to indicate the year(s) in which the irregularity took place in 312 cases.

Table A1: Year in which the irregularity started or was committed

(...PICT...)

In addition, Member States also report the date of discovery of the irregularity and the date on which it was first reported to OLAF. Table A2 shows an overview of the time lap (in years) between discovery and reporting of the irregularity. The table shows that although the reporting discipline of Member States has improved, it still needs attention. Irregularities should be reported as soon as possible, which means immediately after discovery. Under 70% of irregularities are reported within one (1) year following their discovery. The system of electronic reporting, however, offers the possibility to report an irregularity as soon as it is discovered.

Table A2: Time lap between discovery and reporting

(...PICT...)

Late reporting of an irregularity could imply that a Member State failed to take all necessary actions to limit or to reduce the financial impact of an irregularity. Audits have revealed that some Member States wait until recovery procedures are underway before reporting. Furthermore, Member States also start their recovery procedures very late. This, in general, has a negative impact on the chances of recovery.

(...PICT...)

Member States are also required to give detailed information on the identity of the natural and legal persons involved. Germany provided this information in only 47 cases, while the Netherlands did so in 51 cases. Other Member States, such as Finland, Italy and the United Kingdom, also need to address this issue. All other Member States provided the information required and therefore complied with Regulation (EEC) No 595/91. The table gives an overview of discipline in reporting the identity of the persons involved in irregularities.

The general conclusion is that the reporting discipline of Member States improved in 2005, but further improvements are still necessary. It should also be pointed out that new Member States have a better reporting record than some of the former EU-15.

2.2.2. General analysis

The total number of cases reported in 2005 is 3 193. These 3 193 cases amount to approximately €102 million compared with approximately €82 million for the 3 401 cases reported in 2004. Chart A3 shows the total number of cases per year and the total amount per year. Annex 3 gives an overview for 1998-2005.

Chart A3: Irregularities communicated by Member States (1971-2005)

(...PICT...)

The steady and significant increase in the number of cases has come to an end. The total number of irregularities reported in 2005 decreased compared with 2004. The total amount affected by these irregularities has, however, been decreasing since 1994. Chart A3 reflects these trends. The “amounts in €” line shows two (2) peaks, one in 1994, the other in 2000. These peaks are caused by three (3) Italian cases in 1994 and one (1) Italian case in 2000. Leaving aside these exceptional cases, since 1994 there has been a clear steady downward trend in the total amounts affected by irregularities (see the “trend line” on the chart). This can be explained by the introduction of the direct aid/payment section, the introduction of the integrated administration and control system (IACS) and the move towards direct aid/payment decoupled from production.

In 2005, the countries reporting the highest number of cases were Spain, Germany, France, the United Kingdom and Portugal with 711, 521, 482, 337 and 302 cases respectively. In monetary terms, Spain reported the highest amounts affected by irregularities, almost €46 million, followed by Germany and Italy which reported a total amount of approximately €15 million. Spain, Germany and Italy together, accounted for more than 75% of the total amount affected by irregularities in 2005. Up until now, no reports have been received from the Czech Republic, Malta, Slovenia and Slovakia.

Annex 4 gives an overview for each Member State.

Another point worth mentioning is the level of irregularities as a percentage of EAGGF-expenditure per Member State. Spain and Portugal have, as in 2004, the highest percentages, on 0.70% and 0.40% respectively, followed by Italy and Germany with 0.25% and 0.23% respectively. Annex 4 gives an overview of these percentages. Spain and Portugal report more irregularities than other Member States. It is possible that some Member States are under-reporting.

Chart A4 shows the relationship between the total amount allocated per Member State from the EAGGF budget and the total amount affected by irregularities per Member State in 2005. Member States are ranked in order of the budget allocated per Member State, starting with the Member State receiving the least. Malta received the lowest amount (€5.7 million) from the EAGGF budget while France received the highest (€10.1 billion). The (white) line shows the EU mean based on the amounts affected by the reported irregularities and the budget allocated per Member State.

Chart A4: Total amount of irregularities in relation to budget allocated per Member State (year 2005)

(...PICT...)

Together France, Spain and Germany receive almost 50% of the total EAGGF-budget, i.e. approximately €23 billion. In 2005, France received approximately €10.1 billion, Germany more than €6.5 billion and Spain more than €6.4 billion.

In almost all Member States, there is a proportional relationship between the total amounts of support and of irregularities. However, the results for Spain and France are striking. Spain reports a high number of cases, a high total amount involved and a relatively high average amount involved per irregularity. For France the opposite applies: the total number of reported irregularities, the total amounts affected by the irregularities and the average amount affected per irregularity are relatively low. Portugal also reports a relatively high number of cases and total amount affected by the irregularities.

Measures/budget lines affected

Member States must inform the Commission of the measures affected by irregularities. Unfortunately, some Member States, for instance Germany, do not fully comply with this rule. Member States must pay attention to this obligation. Table A5 gives an overview of the irregularities reported per main category. The division into the different types of measures is based on the indications given by Member States of the:

– measures affected,

– regulations infringed, and

– modus operandi.

Table A5: Irregularities per main category of support measure (year 2005)

(...PICT...)

The highest number of irregularities reported was for “rural development”. Member States reported a total of 1 266 cases involving rural development measures (group 40). These cases alone amount to approximately €27 million, which is approximately 26% of the total amount affected by irregularities. The second most heavily involved sector is “fruit and vegetables” (group 15), where Member States reported 180 cases involving approximately €25.5 million. This implies that the average amount per irregularity is relatively high for cases reported in this group. The last group of particular concern is “beef and veal” (group 21). In this sector 487 cases were reported involving almost €22.3 million. These three groups together are responsible for 60% of the total number of reported irregularities and almost 75% of the total amount affected by irregularities.

It is also worth mentioning that the first reports have been received of irregularities concerning the “single payment scheme” (group 70) and “single area payment scheme” (group 75).

2.2.3. Conclusions

– Compliance with Regulation 595/91 still needs attention.

– Germany and Spain are not using the system of electronic reporting.

– The total number of irregularities reported decreased.

– The total amount affected by irregularities reported increased.

– The highest number of cases and amounts were reported for “rural development”.

– The average amount per irregularity was highest for “fruit and vegetables”.

2.3. STRUCTURAL MEASURES EXPENDITURE (Annexes 6, 7, 8 and 9)

In 2005, Member States reported 3 570 irregularities, of which 3 356 were under Regulation (EEC) No 1681/94 (which covers the Structural Funds [6]) and 214 under Regulation No 1831/94 (on the Cohesion Fund). The total amount affected by irregularities in 2005 was about €601 million, €467 million of which was from the Structural Funds and €134 million from the Cohesion Fund. Irregularities notified in this sector were equivalent to 1.56% of the budget allocated to structural measures in 2005. Annex 6 gives an overview of the number of irregularities reported in the period 1998-2005, the amounts involved and the percentage of the structural measures budget affected.

Since the information system of irregularities was established, Member States have reported 19 034 irregularities, of which 18 467 related to the Structural Funds and 567 to the Cohesion Fund.

2.3.1. Reporting discipline

In 2005 OLAF received 3 952 communications under Regulations (EEC) No 1681/94 and 1831/94, of which 622 were updates of cases that had been previously reported (under Article 5 of the above mentioned Regulations).

The system of electronic reporting of irregularities was introduced in 2001. After slow adoption by Member States in the first years of implementation, the number of Member States reporting irregularities electronically has increased notably. However, not all the systems used by Member States’ authorities are fully interoperable with the OLAF External Communications Register (ECR). Therefore some manual data input is still required. Nevertheless, overall, the situation is improving. A major technological improvement is expected in the second half of 2006, which should produce positive effects by the end of the year.

At present, as reported in 2004, all but three Member States (France, Ireland and Spain) have requested a connection via AFIS, the Anti-Fraud Information System, in order to access the specific modules for Regulations No 1681/94 and 1831/94 for electronic submission of communications of irregularities.

Member States also report the date of discovery of the irregularity and the date on which it was first reported to OLAF. Chart S1 gives an overview of the level of compliance with the regulations. Compliance is measured by the level of reporting in 2005 of cases detected in 2004 and 2005. Cases detected before 2004 or for which no date of detection has been communicated indicate non-compliance.

Approximately 84% of irregularities were reported within two (2) years following their discovery. This is slightly down on last year. Member States are invited to pay attention to this point.

The low percentage indicated for Hungary is due to the fact that no date of discovery of irregularity has been indicated in those cases. However, all irregularities from Hungary were reported within two years of their discovery.

Chart S1: Cases reported in 2004 and year of detection

(...PICT...)

Member States are also required to give details of the identity of the natural and legal persons involved. Germany did not report the identity of the natural or legal persons involved, apart from three (3) cases. All other Member States gave information on the identity of the natural and legal persons involved and, therefore, complied with Regulations (EEC) No 1681/94 and 1831/94. Chart S2 gives an overview of the discipline in reporting the identity of the persons involved in irregularities.

Chart S2: Reporting discipline: Identity of persons involved in irregularities

(...PICT...)

The insufficient level of overall compliance in this case (70%) is strongly biased by the fact that the German authorities do not report personal data due to national legal constraints.

Another very important aspect of reporting discipline is the timeliness of transmission of the communications. From this point of view, Member States still need to show improvements, as OLAF is still receiving too many fourth-quarter communications well after the deadline indicated in the legislation (28 February of the following year). In fact communications from Spain were not received until the beginning of April but are included in this report, while the fourth-quarter communications from France were not received until after 10 May 2006 and therefore could not be processed in time for this report.

Timely reporting is a decisive factor for making full use of the information contained in the communications and Member States must take all necessary steps to comply with this requirement.

Apart from these aspects, the quality of the information communicated by the Member States remained satisfactory during 2005, confirming the improvements achieved in 2004.

If the quality of the reports has improved, doubts remain concerning the consistency of approach among the different States. Still too great a difference remains between Member States reporting a high number of irregularities and those communicating only a limited number, especially in relation to the financial resources allocated.

Moreover, beneficiary States also need to concentrate on correct implementation of Regulation No 1831/94. The results achieved by Member States’ authorities on the Structural Funds Regulation are encouraging, but in the case of the Cohesion Fund only eight beneficiary States reported irregularities and, among these, Greece alone reported 70% of the total number of irregularities.

To facilitate the task of the national authorities and, consequently, increase the quality of the irregularity reports, OLAF and the Commission participated in successfully amending Commission Regulations No 1681/94 and 1831/94.

The amending Regulations (No 2035/2005 and 2168/2005 respectively) have simplified the system and clarified the points that had hindered effective implementation in the past.

It is therefore hoped that from 2006 on, after a short period for adaptation to the new rules, the overall quality of irregularity reports will improve.

2.3.2. General analysis

After the peak in 2002, due to the closure of the 1994-1999 programming period, since 2003 the trend has been rising once more in terms of the number of irregularities reported. In 2003 a total of 2 487 irregularities were notified, in 2004 3 339 and 3 570 in 2005. The amounts involved always exceeded €600 million, except in 2003.

Annex 6 shows the general trend in the number of cases and amounts in the last eight years and the relative impact on the budget. Since 2002 it has remained between 1.5% and 2%, as shown in chart S3.

Chart S3: Impact of amounts involved in irregularities on the annual budget for structural measures

(...PICT...)

It is worth underlining once again that, when considering the financial impact of irregularities, three aspects should be borne in mind:

a) The budget indicated is based on the yearly allocations, while irregularities communicated refer to different programming periods (1994-1999 and 2000-2006). Their impact has, however, been calculated on the basis of the yearly allocation. A full assessment of the impact of irregularities/fraud on the Structural Funds budget will not be possible until the different programming periods have been fully closed and processing of the related information/data has been completed [7].

b) Only some of these irregularities have real financial consequences and constitute a specific potential loss to the European budget. In fact, some irregularities are detected before any payment is made and the question of recovery does not arise.

c) The majority of irregularities having a real financial impact are not fraudulent and, once an irregular situation has been identified, corrective measures are adopted and recovery procedures started. These may take some time. In cases of suspected fraud, however, penal or judicial procedures are activated and longer delays can be expected.

It should also be emphasised that the steep increase in reported irregularities between 2001 and 2002 is due partly to the improvements made to the control and management systems after Community legislation (in particular Regulation 438/2001 laying down detailed rules for the implementation of Regulation No 1260/99) and partly to increased awareness of and compliance with the reporting obligations imposed by Regulations1681/94 and 1831/94 on the part of the national authorities.

In relation to irregularities affecting the four Structural Funds (see footnote 5 for a short description of the typologies of projects financed by each Fund), 85.1% of all the irregularities reported in 2005 refer to projects financed during the 2000-2006 round, 14.5% to 1994-1999 and just 0.4% to 1988-1993 or not specified.

Chart S4 shows the number of cases and amounts communicated by each Member State. Member States are listed in order of the level of structural funding allocated to them. Luxembourg, on the left, is the State receiving the least and Spain, on the right, is the country receiving the most.

Chart S4: Number of cases and amounts (excluding Cohesion Fund) per Member State in relation to budget allocated per Member State

(...PICT...)

The chart clearly indicates that, in relation to the resources allocated, some Member States report much less than might be expected.

Distribution of irregularities between the different Funds

Chart S5 shows how the number of irregularities was distributed between the different Funds in 2005.

Chart S5: Distribution of irregularities between the different Funds – number of cases (2005)

(...PICT...)

Table S6 shows the same distribution, also indicating the difference in relation to 2004.

Table S6: Distribution of irregularities between the different Funds in relation to 2004

| ERDF | EAGGF Guidance | FIFG | ESF | Cohesion Fund |

2005 | 1,724 | 397 | 79 | 1,156 | 214 |

2004 | 1,771 | 403 | 57 | 818 | 290 |

Difference | -47 | -6 | 22 | 338 | -76 |

Variation | -2.7% | -1.5% | 38.6% | 41.3% | -26.2% |

In relation to 2004, two points stand out: the increase in cases related to the ESF, in contrast to the trend in the last two years, and the increase in irregularities affecting the Financial Instrument for Fisheries Guidance (FIFG).

Irregularities affecting operations financed from the Cohesion Fund can have extremely high financial values, as they involve extremely costly projects. In line with previous reporting practice, communications concerning the Cohesion Fund will be presented in different annexes [8].

Chart S7 and Table S8, respectively, show how the amounts involved in irregularities were distributed between the different Funds in 2005 and the differences and variations in relation to 2004.

Chart S7: Distribution of irregularities between the different Funds – amounts (2005)

(...PICT...)

Table S8: Distribution of irregularities between the different Funds in relation to 2004

| ERDF | EAGGF Guidance | FIFG | ESF | Cohesion Fund |

2005 | 348,137 | 15,505 | 8,376 | 94,601 | 134,198 |

2004 | 458,544 | 21,753 | 6,487 | 46,035 | 162,792 |

Difference | -110,407 | -6,248 | 1,889 | 48,566 | -28,594 |

Variation | -24.1% | -28.7% | 29.1% | 105.5% | -17.6% |

The points made about the number of communications apply equally to the amounts involved. In particular, the increase in ESF cases is remarkable.

As far as the Cohesion Fund is concerned, it is still worrying that despite the increase in States reporting irregularities, both the number of irregularities and amounts involved decreased (from 290 to 214 and from 163 million to 134 million respectively) and that about 93% of communications came from only one beneficiary Member State, Greece. Czech Republic, Estonia, Hungary and Lithuania reported their first cases under the Cohesion Fund.

The analysis of patterns across Member States in previous years was only partly confirmed in 2004. The number of irregularities reported by Germany increased even further (from 983 to 1 208) and the difference between Germany and the rest of the Member States became wider, considering that Italy (the country that came second) reported less than half this number (563). In terms of the amounts involved, however, the situation described in the 2004 report was fully confirmed, with Italy reporting the highest irregular amounts and Germany second. Greece came third, excluding the communications concerning the Cohesion Fund. As already mentioned the sums involved in the Cohesion Fund are extremely high and refer, almost exclusively, to Greece. If those sums are taken into account, Greece becomes the country reporting the second highest amounts.

In 2005 notifications of irregularities were received from 21 Member States, with only Cyprus, Malta, Slovakia and Slovenia reporting no irregularity at all.

For six Member States the number of reports decreased (Belgium, Denmark, France, Ireland, Italy and Portugal), while for all the others the number of irregularities reported increased (with the exception of Luxembourg which reported the same number of irregularities as in 2004).

Significant differences remain between Member States in terms of the number of cases reported. The number of irregularities reported by Germany and Italy raises the possibility that there could still be some under-reporting by other Member States, in particular France.

2.3.3. Conclusions

– Compliance with Regulations No 1681/984 and, especially, 1831/94 still needs attention.

– The total number of irregularities reported increased.

– The total financial amount affected by irregularities reported decreased.

– The highest number of irregularities and amounts affected were still reported in connection with the European Regional Development Fund, but irregularities concerning the ESF showed a significant increase in comparison with 2004.

· 2.4. PRE-ACCESSION FUNDS EXPENDITURE (Annexes 11, 12, 13 and 14)

In 2005 Member States reported 331 new cases plus 415 updates, of which 225 referred to cases reported in the previous years. The total amount of eligible expenditure in the reported projects was €387.6 million, of which €26.5 million was irregular.

Depending on the pre-accession fund, the obligations to report irregularities are based on agreements signed between acceding countries and the European Community. Provisions in these agreements are derived from Commission Regulation (EC) No 1681/1994.

Since the information system on irregularities was established OLAF has received 669 new cases and 672 updates. The total amount of eligible expenditure in the reported projects with irregularities was €2 770.9 million, of which €46.5 million was irregular.

Eligible expenditures: total amount of the project in which irregularity was detected;

Irregular amount: amount affected by irregularity; part of the project’s eligible expenditures identified as irregularity or fraud;

Community financing: part of the project financed by the European Community;

Applicant Country Financing: part of the project financed by acceding country / Member State, in some cases includes also private co-financing.

2.3.4. Reporting discipline

Irregularities detected by acceding countries and new Member States have to be reported to OLAF within two months after the end of the quarter. Unfortunately, the electronic system of reporting is not yet operational and irregularity reports have been sent in paper format to both OLAF and the relevant line DGs. OLAF must input the data manually before they can be analysed.

Timely reporting of irregularities is a great help to OLAF for conducting its analysis. In 2005, only four out of the 12 countries reporting sent in all their reports on time [9] (Cyprus, the Czech Republic, Romania and Slovenia). Certain Member States appear to have some difficulty in complying with the regulations. Malta has not sent a single irregularity report, Hungary failed to send nine reports in time and Poland missed the reporting deadline on four occasions.

Comparing the date of the first report giving rise to suspicion of irregularity and the date on which the irregularity report was received by OLAF, only 50% of the irregularities reported were detected in 2005, 22% in 2004 and 2% in 2003.

Three irregularities were reported as detected in 2006. This was because beneficiary countries are obliged to report within two (2) months following the end of the quarter, and irregularities detected at the beginning of 2006 are therefore included in the fourth-quarter reports. This practice should be avoided. However, no date of notification was indicated in 24% of the reports.

Chart P1: Cases reported in 2005 and year of detection

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Missing information is a major problem in analysis of the incoming irregularity reports. In 2005 the quality of the reports increased slightly, as more fields were filled in. However, the consistency of the information within a report remains questionable. It is still common to find that information in one part of the report contradicts information in others. Requests for clarification from Member States and acceding countries complicate the data analysis process.

Table P2 shows the percentage of information missing from reports communicated to OLAF. Member States and acceding countries are very reluctant to identify natural or legal persons involved in committing irregularities. Data on judicial procedures are very often missing. This can perhaps be explained by the fact that in many cases irregularities are dealt with through administrative rather than judicial procedures. However, this assumption is difficult to verify. A slight deterioration can also be observed in submission of information on the “Community provision infringed” but this was balanced by better indication of the “national provisions infringed”. Nevertheless 12% of reports sent in 2005 provided no data on either issue.

Table P2: Quality of data in the irregularity reports

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On occasion, the numbers provided by reporting authorities are not consistent within the same report, indeed sometimes not even within the same paragraph of a report. Eliminating these inconsistencies will facilitate OLAF's tasks.

2.3.5. General analysis

Taking into account the varying degrees of reliability and comparability in the content of communications, it is still possible to conduct a preliminary analysis. The highest number of cases reported in 2005 concerned the SAPARD fund, in line with the pattern observed in previous years. In comparison to the ISPA fund, SAPARD and PHARE fund more relatively smaller projects. In 2005 the average total eligible amount was €0.6 million in SAPARD and PHARE projects and €7.8 million in ISPA. The decrease in communications connected with ISPA is also due to the fact that on the day of accession ISPA projects in the new Member States were closed and reopened as Cohesion Fund projects, whereas PHARE and SAPARD are still being implemented and irregularities are still reported under the previous arrangements. In 2005 in ISPA 92% of communications came from acceding countries and only 8% were sent by the new Member States (namely Lithuania).

Chart P3: Distribution of communications between different Funds – Number of cases

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The distribution changes when account is taken of the fact that ISPA’s share of the total irregular amount reported is bigger. In 2005 the irregular amounts under ISPA grew rapidly, mainly due to increased reporting from Bulgaria and Romania, which together account for 99% of the irregular amount reported. Bulgaria, which reported only one irregularity, a whole project worth over €7 million identified as totally irregular, accounts for 76% of the total.

Chart P4: Distribution of communications between Funds – Total irregular amounts

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In 2005 the highest average irregular amount (Community financing) per project reported was in ISPA and was very high (€277 548) due to the above mentioned Bulgarian project. If that project were excluded, the average amount would fall to €67 335, which is still the highest of all three funds, but the difference is not that striking. PHARE and SAPARD averaged €43 932 and €22 482 respectively. In SAPARD despite the fact of increased number of communications reported irregular amount (community financing) decreased. This is because 40% of cases involved amounts less then €4 000. Comparing Member States and acceding countries, the highest average amount per project funded by PHARE was in Poland (€574 901), by SAPARD in Estonia (€247 354), and by ISPA in Bulgaria. Once again if the big project in Bulgaria is excluded, the highest average per project was in Romania (€73 350).

Chart P5 compares the average irregular amount (Community financing) per project in 2005 with previous years. In almost all States, this either remained stable or dropped, the only two exceptions being Poland and Bulgaria, where the averages rose 44- and 7- fold respectively. In 2005 for all funds and all Member States the average irregular amount per case was €50 754, an increase of 51% in comparison to 2004.

Chart P5 – Average irregular amount (Community financing) per case reported

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Chart P6 shows the number of cases and the total eligible amount (Community financing) communicated by each Member State or acceding country. Countries are listed in order of the level of pre-accession funds allocated to them.

Chart P6 – Eligible amounts (Community financing) and cases reported under the pre-accession funds – 2005

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Both lines show a correlation between the amounts allocated to beneficiary countries and the reported cases and amounts. However, comparing the eligible amounts reported, three out of the four biggest beneficiaries (Poland, Bulgaria and the Czech Republic) reported amounts equal to Hungary (€27 million). Comparing the number of cases, the three above mentioned countries made a combined total of 70 new reports, while Hungary alone produced 50. Another outlier is Romania which reported frequently and accounted for 72% of all the reported eligible expenditure.

Chart P7 shows the irregular amounts again compared to allocation. It also confirms the correlation from the previous chart, albeit less strongly. On Chart P7 three peaks can be observed: irregular amounts reported by Estonia, Hungary and Bulgaria. However, in the case of Bulgaria, if the one ISPA project declared completely irregular were deducted, the total irregular amount would decrease sharply from €6.5 to €1.2 million.

Chart P7: Irregular amounts in the Community - financed part of the project – 2005

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Combining the data from the previous two charts, two different groups of countries can be identified (see Chart P8). The first reported a relatively large number of cases (Romania, Lithuania, Slovakia and Hungary), but in these countries the irregular amount as a percentage of eligible expenditure was low. At the other end of the spectrum, the Czech Republic, Estonia and Bulgaria made few reports, but identified cases involving massive degrees of irregularity. Despite the high share of the irregular amounts in the eligible expenditure, in these three countries the share of irregular amounts in total eligible expenditure remained low, on 5%, because these countries reported very few cases. This chart clearly reveals two different attitudes to reporting irregularities to the Commission.

Chart P8: Irregular amount as % of eligible expenditure (Community financing)

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Chart P9 compares the expenditure allocated to the Member States and acceding countries in 2004 [10] with the eligible expenditure and irregular amounts reported in 2005. Overall, in 10% of the projects (in terms of amounts) some irregularities were found. However, only 0.55% of the total amount of allocated expenditure was identified as irregular. Phenomena very similar to those seen from the previous chart can also be observed, with countries reporting frequently showing a higher share of eligible expenditure in allocation of expenditure, but at the same time having a very low irregular amount as a percentage of allocated expenditure. On the other hand, countries reporting less frequently have the highest share of irregular amounts in the allocated expenditure.

Chart P9: Eligible expenditure and irregular amounts (Community financing) as % of expenditure.

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Despite the fact that some countries are very reluctant to report whether a case is fraud or an irregularity, based on the declarations the majority of reported cases (81.7%) seem likely to be irregularities, while suspected fraud makes up only 18.7% (1.23% of cases were excluded as the type of irregularity was not indicated). The highest share of suspected fraud was in the PHARE fund on 26%, while the second most common type of irregularity in that fund is “falsified accounts”. In SAPARD 15% of the cases involved suspected fraud and the most common type of irregularity was “infringement of rules concerning public procurement” (21%). The lowest share of suspected fraud cases was in ISPA where it stood at only 4% and the most frequent modus operandi was “missing or incomplete documents” (56%).

Table P10: Type of irregularity – Share in total number of cases

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2.3.6. Conclusions

Despite the fact that in many countries substantial improvements were made during 2005, further work needs to be carried out to ensure that all States fully comply with reporting requirements. This would greatly facilitate the task of making reports comparable between States. A common method of approach needs to be implemented by each Member State and acceding country to provide a better overview of the threats to the Community’s finances.

PHARE accounted for a higher share of the total irregular amount reported in 2005. It was also the fund with the highest rate of suspected fraud. PHARE also has the lowest total eligible amount, which therefore gives the highest total irregular amount as a percentage of total eligible expenditure.

ISPA, due to the size of its projects, has the highest irregular amount (Community financing) per reported case out of the three pre-accession funds.

3. SPECIFIC ANALYSIS: TRENDS

3.1. TRADITIONAL OWN RESOURCES (TOR)

From the number of cases of fraud and irregularities notified under Article 6(5) of Regulation 1150/2000 general trends can be revealed for 2005. However, care should always be taken about drawing overall conclusions based merely on comparisons of data from different years, because several additional factors have to be borne in mind.

Firstly, some notifications are communicated belatedly, i.e. after the deadline set for analysis of data for this report, and will therefore distort the comparison with the previous and the following year. In addition, updates are made daily – the situation can therefore change very markedly from day to day.

Secondly, very often, reported cases of fraud and irregularities were committed some years earlier, either before they were subject to regular ex-post controls or, in other cases, after regulatory intervals expired.

Thirdly, although the quality of the OWNRES database is still being improved, at the moment its contents cannot yet be considered fully reliable. This is due to the fact that, apparently, despite repeated requests and surveys by the Commission, still not all cases of fraud and irregularity are reported fully and properly by the Member States.

3.1.1. Smuggling, misdescription and false declarations - important vehicles for fraud.

The breakdown of fraud and irregularities by customs procedure and by type of fraud and irregularity confirms the impact of fraud on release for free circulation.

The 2005 figures confirm that the majority of TOR-cases relate to the arrangements for release for free circulation which account for 53% of the number of cases and 68% of the total value communicated. In relation to 2004, the proportion of reported cases has decreased (67% in 2004) as well as the percentage in terms of amounts (84% in 2004). A more detailed breakdown by type of fraud and irregularities relating to free circulation reveals the high share of misdescription (37% of cases in 2005 compared with 44% in 2004 – 26% of the amount involved in 2005 compared with 25% in 2004). Origin fraud and irregularities increased in relation to 2004 (12% of the cases in 2005 compared with 10% in 2004 - 21% of the amount in 2005 compared with 14% in 2004). Fraud and irregularities resulting from false declarations of value increased slightly (14% of the cases in 2005 compared with 12% in 2004, but 10% of the amount in 2005 compared with 11% in 2004).

The proportion of all communicated cases related to fraud and irregularity in the transit regime has also increased significantly while accounting for 39% of the number of cases (26% in 2004) and 17% of the amount communicated (compared with 7% in 2004). With regard to the customs warehousing arrangements, the proportion of fraud and irregularity remained stable (2% of the number of cases, as in 2004, and 1.6% of the amounts communicated compared with 2.5% in 2004). Inward processing regime became more prominent, accounting for 5% of the number of cases of fraud and irregularities in 2005 (2% in 2004) and 9% of the amount reported in 2005 compared with 1% in 2004.

The breakdown of fraud and irregularities by Member State shows the relatively high contribution by the United Kingdom to fraud and irregularities in connection with inward processing, by the Netherlands, the United Kingdom, Germany, Italy, France and Spain as regards free circulation and by Belgium and the Netherlands for Community transit.

3.1.2. Cigarettes - still risky goods

The breakdown of cases by type of goods confirms the impact of fraud and irregularities on cigarettes although cases relating to sugar gained ground.

Of the 25 goods worst hit by fraud and irregularities, as in previous financial years, cigarettes were in the lead in terms of number of cases, whereas sugar cases accounted for the largest amount. The 2005 figures also highlight a continued trend towards fraud and irregularity relating to products under Chapters 84 and 85 of the Tariff (lamps, machines, appliances, electrical and IT-equipment, etc.). The textile sector is growing in importance, in particular as regards questions of origin.

Analysis of the origin of goods subject to fraud and irregularity reveals that goods originating from China, the USA, Japan, Brazil and South Korea remain heavily involved, as do goods from Taiwan and Hong Kong. The number of cases in the “non-specified” category increased in parallel with the increase in transit cases.

3.2. AGRICULTURAL EXPENDITURE (EAGGF-Guarantee Section)

In 2005 Member States reported 3 193 cases of irregularities involving a total amount affected of approximately €102 million.

3.2.1. Measures involved

Table A5 (see page 13) gives an overview of the number of cases reported in 2005 and the amounts affected per group of measures. The division into the different types of measures is based on the indications by Member States of the measures affected, the regulations infringed and the modus operandi.

The three(3) main categories most affected by irregularities are:

– Rural development (group 40),

– Fruit and vegetables (group 15),

– Beef and veal (group 21),

Together, these three (3) main categories are responsible for almost 75% of the total amounts affected by irregularities reported in 2005.

Rural development (group 40)

Member States reported a total of 1 266 cases affecting rural development measures (group 40). These cases alone amount to approximately €27 million, which is approximately 26% of the total amount affected by irregularities. Table A6 shows the measures that were mostly affected by irregularities, indicating the number of cases, the total amounts and average amount per irregularity. The largest number of irregularities concerns “agri-environment – new system” (code 4050 A).

Table A6: Rural development: measures affected by irregularities (year 2005)

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The first three measures “agri-environment – new system”, “improving the processing and marketing of agricultural products” and “forestry – former system” - alone cover 77% of the total amount involved in irregularities connected with rural development. If “agri-environment – former system” and “forestry – new system” are added to this top three (3), then 84% of the total amounts affected by irregularities connected with rural development are reported under:

– Agri-environment,

– Improving the processing and marketing of agricultural products,

– Forestry,

Table A7 gives an overview per Member State of the number of irregularities reported and the amounts affected for “agri-environment” measures.

Table A7: Agri-environment (year 2005)

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It is not surprising that Germany, Spain, France, Italy and the United Kingdom are the top Member States reporting irregularities in this sector: these Member States receive the highest support and normally there is a link between the total amount received and the irregularities reported. It is, however, remarkable that Portugal is in second place, in terms of the amounts affected by the irregularities. Portugal reported the largest number of cases concerning agri-environment measures.

Table A8 gives an overview of the irregularities reported concerning the measure “improving the processing and marketing of agricultural products”. Only three (3) Member States reported a limited number of irregularities concerning this measure. The financial impact, however, is high: almost €7.1 million, mainly due to one irregularity reported by Germany involving a total of almost €5 million.

Table A8: Improving the processing and marketing of agricultural products (year 2005)

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Member States reported 167 irregularities concerning forestry measures. Table A9 gives an overview of those irregularities. Spain and Portugal reported the highest number of cases with the highest amount affected. The average amount per case is fairly high for the cases reported by Spain, at about €61 000.

Table A9: Forestry (year 2005)

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Fruit and vegetables (group 15)

Member States reported a total of 180 cases affecting support measures to support the fruit and vegetables sector (group 15). These cases alone add up to approximately €25.4 million, which is approximately 25% of the total amount affected by irregularities. This is relatively high. Table A10 shows the measures which were worst hit by irregularities, indicating the number of cases, the total amounts and the average amount per irregularity.

Table A10: Fruit and vegetables: measures affected by irregularities (year 2005)

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Member States reported seven (7) cases in which the total amount affected by the irregularity was more than €1 million.

The largest number and the highest total amount affected by irregularities is reported for the measure “operational funds for producer organisations” (code 1502 S). Member States reported 47 cases with a total amount affected of approximately €6.4 million. Table A11 gives an overview per Member State.

Table A11: Operational funds for producer organisations (year 2005)

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The number of irregularities reported for measures concerning “fruit-based products production aid” (code 1512 S) is rather low. The financial impact, however, is high. Member States reported 12 cases with a total amount affected of more than €5.4 million. Table A12 gives an overview.

Table A12: Fruit-based products - production aid (year 2005)

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In recent years, Member States consistently reported a relatively high number of irregularities concerning citrus fruits. This was confirmed in 2005 when Member States again reported a relatively high number of irregularities involving a relatively high amount in this sector: 39 irregularities and a total amount affected of more than €4 million. Table A13 gives an overview.

Table A13: Citrus fruits - compensation to encourage processing (year 2005)

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Italy classified all three (3) cases as “suspected fraud”. One (1) of the Italian cases involved a total of more than €1.7 million.

Beef and veal (group 21)

Member States reported a total of 487 cases connected with beef and veal measures (group 21). These add up to approximately €22.3 million, almost 22% of the total amount affected by irregularities. Table A14 shows the measures which were worst hit by irregularities, indicating the number of cases, the total amounts and the average amount per irregularity. The highest amounts affected by irregularities were reported for export refunds on fresh, frozen or canned beef/veal. The largest number of irregularities was reported for “suckler cow premiums”.

Table A14: Beef and veal: measures affected by irregularities (year 2005)

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The cases with a high financial impact were reported by Spain with nine (9) export refund cases, of which five (5) had a financial impact above €1million. Table A15 gives an overview of irregularities concerning export refunds for beef and veal.

Table A15: Beef and veal: export refunds for beef/veal (year 2005)

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Export refunds

Table A16 gives an overview of the irregularities per Member State in connection with export refunds. The number of irregularities in this area is decreasing and accounted for only 9% of the total number of irregularities reported in 2005. As mentioned earlier, this is a logical consequence of the introduction of direct aid/payment in 1992 and of the changes to the direct aid/payment scheme in 2000. The financial impact of the irregularities in export refunds, however, is still relatively high: 24% of the total amount affected by irregularities. In Austria, irregularities in export refunds account for 86% of the total amount.

Table A16: Irregularities in export refunds per Member State (year 2005)

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Table A17 shows the group of support measures most often involved in irregularities in export refunds. The highest number of cases reported and the highest amounts affected are for measures concerning beef and veal exports. A rather large number of irregularities are classified as “other”, which means that the Member States did not specify the measure involved. Such irregularities were reported by Germany and the United Kingdom. In a large number of these cases, the Member States reported the goods involved as “unknown”. This is remarkable, especially when they concern export declarations where the CN (Combined Nomenclature) code is clearly stated.

Table A17: Export refund: irregularities per group (year 2005)

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3.2.2. Types of irregularity

Table A18 shows the most frequently used modus operandi (MO) amongst the irregularities reported in 2005.

Table A18: Irregularities and most frequently used MO (year 2005)

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The most frequent irregularity is “failure to respect other regulations/contract conditions”, followed by “missing or incomplete documents”.

However, the value of this overview is questionable.

In 2004, an analysis was conducted of the level of fraud, based on the types of irregularities reported by Member States. It was a first attempt to estimate the level of (suspected) fraud in the agricultural sector. The results of this analysis, however, led to a change in the reporting of the (codes concerning the) type of irregularity. Almost all Member States seem to have developed a preference for one or two codes which permit no detailed breakdown. Table A19 gives an overview of the preferences of Member States. Ireland described 76% of its cases of irregularity as “action not carried out in accordance with rules” while Sweden described 77% of the irregularities it reported as “incorrect or incomplete request for aid”.

Table A19: Member States’ preferred codes (year 2005)

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Germany indicates no code at all. OLAF has tried to “translate” the sometimes very basic descriptions into codes.

The impression is that Member States prefer to report a more general description to avoid classification by the Commission as irregularity or (suspected) fraud.

Greece, Finland and Italy describe each irregularity in more detail and therefore comply more fully with the regulations. The number of irregularities reported by Cyprus, Luxembourg and Latvia is too small to draw conclusions.

This new practice of Member States not only fails to comply with the regulations but also is not helpful in the fight against fraud. A clear overview of the (most recently used) modus operandi in irregularities will support the Member States and the Commission in their fight against fraud and help to reduce the number of irregularities.

3.2.3. Detection method: controls based on Regulations 4045/89 and 386/90

Member States are under an obligation to perform certain controls on the basis of Council Regulation (EEC) No 4045/89 [11] and Council Regulation (EEC) No 386/90 [12].

Table A20 gives an overview of irregularities detected on the basis of these controls. The table covers the period 2000-2005, since the cases reported for 2005 do not provide enough information to produce any meaningful statistics.

The number of irregularities detected on the basis of controls under Regulation (EEC) No 386/90 is very limited. The table shows that over a period of six (6) years only 261 irregularities have been discovered in this way.

In terms of amounts, the irregularities discovered on the basis of controls under Regulation (EEC) No 386/90 in 2005 account for about 0.4% of the total amounts affected by involved in irregularities reported in 2005.

Over a period of six (6) years, five (5) Member States (EU-15) reported no irregularities detected on the basis of controls under Regulation 386/90 (Greece, Finland, Luxembourg, Sweden and the United Kingdom).

Another notable point is the (low) score of the Netherlands: with only three (3) irregularities reported on the basis of controls under Regulation (EEC) No 386/90. Rotterdam is the biggest port in Europe, playing an important role in the import and export of goods, including agricultural products. Nevertheless, no irregularities have been reported by Dutch customs in recent years.

Table A20: Irregularities detected on the basis of controls under Regulation 4045/89 or Regulation 386/90 (period 2000–2005)

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Chart A21 shows the results of the controls for the period 2000-2005 by Member State, indicating the total amount and the average amount per irregularity, on the basis of Regulation (EEC) No 4045/89. The most notable results are those from France and Belgium.

Chart A21: Results of controls under Regulation (EEC) No 4045/89 (period 2000–2005)

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The chart shows that France reports relatively high amounts affected by irregularities on the basis of controls under Regulation 4045/89. The average amount per irregularity detected, however, is low. Belgium, on the other hand, reports a very high average amount per irregularity detected. A high average amount per irregularity detected could be considered an indicator of the effectiveness of risk analysis.

In terms of amounts, the irregularities detected on the basis of controls under Regulation (EEC) No 4045/89 in 2005 account for about 10% of the total amounts irregularities reported in 2005.

Chart A22 gives an overview of the number of controls on the basis of Regulation (EEC) No 4045/89 for the period 1991-2005.

Chart A22: Irregularities reported on the basis of controls under Regulation 4045/89 (period 1991–2005)

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This overview shows that the number of irregularities reported has increased but that the amounts affected by the irregularities are still at around the same level as in the first years after Regulation (EEC) No 4045/89 came into force. The chart shows two (2) peaks. The first, in 1994, was caused by one (1) case in Italy involving €75 million, whilst the second, in 2000, is the result of three (3) large cases. (Italy reported two (2) cases which involved about €120 million and Belgium reported one (1) case worth a total of about €31.5 million). Ignoring those two (2) peaks, the line is fairly flat. The broken line on the chart represents the situation including the 1994 and 2000 peaks.

In 2005 Member States reported 199 irregularities discovered as a result of controls under Regulation 4045/89. The total amount affected was approximately €9.9 million. This is almost 50% down on 2004 when 390 cases involving a total of approximately €18.7 million were reported as a result of operations under Regulation 4045/89.

3.2.4. Irregularity versus suspected fraud

With the introduction of the digital reporting system in mid-2001, Member States were asked to classify the irregularities reported. To assist them, an extra field was added to the module offering four (4) possibilities: mistake, irregularity, (suspected) fraud and organised crime. The field was modified in 2004 and now offers three (3) possibilities: no irregularity, irregularity and (suspected) fraud. With the exception of Cyprus, Germany and Spain, all Member States have started to classify irregularities. Germany and Spain are also the only two (2) Member States still not using the Anti-Fraud Information System (AFIS), a secure network, to report irregularities.

Table A23 gives an overview of the classification of irregularities by Member States and by OLAF. As mentioned earlier, Member States have developed the new practice of reporting only one (1) or two (2) different types of irregularity in the majority of cases. The figures shown in the table should therefore be treated with caution.

Table A23: Classification of irregularities (year 2005)

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The codes used in Table A23 stand for:

Blank = no indication by Member State,

IRQ 0 = no irregularity,

IRQ 1= mistake/error (this code was deleted from the system but is still used by some Member States),

IRQ 2 = irregularity,

IRQ 3 = (suspected) fraud.

On the basis of the irregularities reported in the period 2000-2005, in particular the classification by Member States, the modus operandi, the type of irregularity, the administrative state of an irregularity and the additional information given in text fields, a first attempt has been made to estimate the level of “suspected fraud” in the agricultural sector. Chart A24 reflects the results of this analysis and shows the percentage of irregularities which can be classified as “suspected fraud” cases, in terms of both the number of cases and the amounts affected by the irregularities.

Chart A24: Irregularities and “suspected fraud”

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Given that this was a first attempt to estimate the level of fraud in agricultural sector the figures should be interpreted cautiously. Nevertheless the results of the analysis are in line with the results of those Member States which classify the irregularities.

One early conclusion is that, as a percentage of the total number of reported irregularities, “suspected fraud” varies between 10% and 13% in the period 2000–2005. The chart shows that the level of “suspected fraud” cases, as a percentage of the total number of irregularities reported, is relatively stable.

“Suspected fraud” as a percentage of the total amounts affected by the irregularities reported decreased from 44% to 20% over the period 2000–2005. The red/dark line reflects the situation if three (3) high-value cases are not taken into consideration. The broken line reflects the situation including three (3) relatively high-value cases. The trend is in line with the overall trend; the number of irregularities reported is increasing but the amounts affected by the irregularities are decreasing. A greater difference between the percentage of “suspected fraud” cases based on the amounts and the percentage based on the number of “suspected fraud” cases was to be expected: amounts vary more and differ per irregularity reported.

It should be reiterated that Member States have started to report a rather large number of cases (more than 50%) under the broad category of irregularity which makes it more difficult to estimate the level of (suspected) fraud.

3.2.5. Penalties and interest

The agricultural sector is renowned for its severe penalty system. Penalties varying from 25% to 50% and more are not unusual. Table A25 gives an overview of penalties and interest over the period 2000–2005.

Table A25: Penalties and interest: period 2000 - 2005

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Over the period 2000–2005, Member States reported 18 492 cases. The total amount affected by these irregularities is approximately €1 074 million. The total amount of penalties imposed over the period 2000-2005, according to the reports received from Member States, is roughly 3%. (Roughly, since not all non-irregularities have been excluded in the calculation of the figure). This is considered to be rather low. The European Court of Auditors has included an investigation of the penalties in its work programme for 2006. The findings of the Court will help to determine if 3% is the correct figure.

3.2.6. Recovery

In general, recovery of unduly paid amounts is more successful if it is started as soon as possible. The earliest possible moment is directly after detection of an irregularity. Table A26 gives an overview of recovery over the period 2000–2005.

Table A26: Recovery rate (period 2000 – 2005)

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The fourth column indicates the recovery rate per Member State. Successful Member States in this respect are Austria, Denmark, Finland, Ireland and Luxembourg.

The fifth column indicates the recovery rate, including the cases declared irrecoverable by the Member States. In those cases an “Article 5(2)” letter should be sent to the Commission. The Commission has to take a final decision in these cases. The Member States take no further action to recover these unduly paid amounts.

The sixth column indicates the recovery rate, including the cases declared irrecoverable and the cases subject to a judicial procedure. It also includes cases where the Member States will take no further action until a decision has been taken, either by the Commission, in cases declared irrecoverable, or by a national court in cases subject to a judicial procedure.

3.2.7. Conclusions

– Member States report the same type of irregularity for the majority of their cases.

– Checks on the basis of Regulation 386/90 lead to the detection of only a small number of irregularities.

– The total amounts affected by irregularities detected by controls under Regulation 4045/89 remains the same as the number of irregularities has increased over the years.

– “Suspected fraud” cases, as a percentage of the total number of irregularities reported, vary between 10% and 13%.

– The total amount of penalties is approximately 3% of the total amount affected by irregularities.

– Recovery of unduly paid amounts is more successful when recovery commences directly after detection of the irregularity.

3.3. STRUCTURAL MEASURES

In 2005 Member States reported 3 356 irregularities and a total amount affected by these irregularities of about €466.6 million concerning the four Structural Funds.

214 irregularities were reported concerning the Cohesion Fund for a total financial amount affected by irregularities of €134.2 million.

3.3.1. Analysis of the irregularities reported

Chart S9 shows the trend in the overall average amounts of irregular EU funding per case over the last eight (8) years.

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Chart S9: Trend in EU-15 mean irregular amount per case 1998-2005

The chart shows two situations, including and excluding the irregularities relating to the Cohesion Fund. Irregularities affecting this fund are of extremely high value, because of the amounts involved in projects financed from this instrument, and, therefore, have a big impact on the mean value. This is especially true of the last three years, when their numbers have been even higher, because of increased reporting from Greece.

In relation to 2004, the decrease can be explained by the larger number of communications regarding ESF-financed projects. The ESF supports measures to promote employment (education systems, vocational training and recruitment aids). It finances a larger number of projects than the ERDF, but with a lower financial cost.

Chart S10 [13] shows the average amount involved in the irregularities in each Member State and how they are distributed in relation to the overall mean (straight horizontal line). This mean value is calculated with reference exclusively to the four Structural Funds and excluding the Cohesion Fund.

Chart S10: Distribution of national average values in relation to EU mean

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Considerable differences still exist between Member States, especially between the highest average value (Italy with €318 210) and the lowest (Poland on €6 349).

Charts S11 and S12 divide the communications into five categories, depending on the amount affected by irregularities (€4 000 to €10 000, €10 001 to €50 000, €50 001 to €150 000, €150 001 to €1 million and over €1 million).

The charts also show the proportion of the total from each fund. It is clear that the highest number of cases reported involve amounts of between €4 000 and €50 000 (first two categories in chart S11) which account for 66% of the total number of cases reported to OLAF.

Chart S11: Distribution of communications per category – number of cases

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Eleven countries reported no cases in the highest value category (> €1 million): Belgium, the Czech Republic, Denmark, Estonia, Finland, France, Hungary, Latvia, Luxembourg, Poland and Sweden. The countries which reported most cases in the highest category are Italy (32), Greece (30, of which 16 were from the Cohesion Fund) and Germany (23), followed by Spain (12, of which 4 from the Cohesion Fund), the United Kingdom (5), Portugal (4 of which 1 from the Cohesion Fund), Ireland (4, all from the Cohesion Fund), the Netherlands (3) and Austria (2).

If the amounts involved are taken into account, the situation is reversed, with the cases in the highest category (>€1 million) accounting for 56% of the total amount communicated to OLAF, as shown in Chart S12.

Chart S12: Distribution of communications per category – amounts

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3.3.2. Types of irregularities

Differences remain between Member States as regards the types of irregularities reported and, to a certain extent, these are consistent with last year. The majority of cases involve irregularities of an “administrative” nature that are normally detected in the course of the routine documentary checks which are conducted before any European money is paid. To demonstrate this, the most frequent types of irregularity reported by Member States are “not eligible expenditure” and “missing or incomplete supporting documents”. Once again, Italy was the country where the most falsifications of documents were detected. Italy was not the only Member State to report this kind of situation (similar cases were also reported by Poland, Germany, the United Kingdom, Portugal and Latvia), but it remained the leader.

Table S13 shows the most frequent types of irregularities together with the amounts involved and the indicative average amount.

Table S13: Most frequent types of irregularities reported by Member States

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It should be noted that due to the reporting method a single case communicated to OLAF may contain more than one type of irregularity. The figures in Table S13 are based on how many times the type of irregularity has been communicated alone and how many times it has been reported together with other types. The amount involved sums up all the values related to that specific type [14].

The “real” total amounts reported are indicated in Annex 7.

It is important to underline that the most frequent types of irregularities are almost the same as in the last four years, confirming a certain consistency in patterns and trends relating to structural measures and consistency in reporting by the Member States.

3.3.3. Irregularity versus suspected fraud

In the 2004 annual report a first attempt was made to estimate the proportion of the irregularities reported which could be defined as “suspected frauds”. This attempt was based on a specific analysis of the information reported by the Member States concerning the modus operandi, the type of irregularity, the administrative state of an irregularity and the additional information given in text fields.

In the mean time, a major event has occurred. After the modifications introduced by Regulations No 2035/2005 and 2168/2005 to basic Regulations No 1681/94 and 1831/94, as of 1 January 2006 Member States will have to “classify” each irregularity reported. Member States authorities will therefore have to indicate whether the irregularity is a “suspected fraud” or not. The concept “suspected fraud” is necessary, because a given situation cannot be defined as fraud until a sentence has been passed by a competent court.

Already 472 irregularities reported under Regulation No 1681/94 were classified by Member States in 2005. This is a little more than 14% of the total number of irregularities concerning the Structural Funds. Out of these 472 irregularities, 7% were classified as suspected fraud.

This sample is evidently not representative enough to draw any conclusion, but if Member States duly comply with this requirement, estimation of the level of fraud will be easier and more precise in the years ahead.

Furthermore, it could be added that, on the basis of Table S13, it can be immediately extrapolated that the modus operandi reported in the case of 237 irregularities included the use of false or falsified supporting documents, which is a clear indication of suspected fraud.

This accounts for almost 11% of the number of irregularities indicated in Table S13.

Moreover, more than 13% of the irregularities reported are subject to a judicial or penal procedure.

Chart S19 shows the distribution of the irregularities subject to a judicial or penal procedure between the different funds.

Chart S19: Distribution of irregularities subject to a judicial or penal procedure between the different funds

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Using the same method as in 2004, 15% of the irregularities reported could be defined as “suspected fraud”. Table S20 shows the result of the estimation per fund.

Table S20: Estimated level of “suspected fraud” in the total number of irregularities reported

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As indicated in the annual report for 2004, the ESF remains the fund most affected.

However, a great deal of caution is called for when assessing the meaning of these figures, bearing in mind that they are based on an assessment of the information provided by the Member States.

Chart S21 shows the trend in suspected fraud as a percentage of the total irregularities reported in the last six years.

Chart S21: Level of “suspected fraud” in total irregularities reported from 2000 to 2006

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The lowest level of suspected fraud as a percentage of total irregularities reported was recorded in 2002. This was also the year in which the highest number of cases of irregularities was reported to OLAF, coinciding with the closure of the 1994-1999 round.

On the basis of this estimate, in 2005 “suspected fraud” affected about 0.40% of the budget allocation for structural measures.

3.3.4. Irregularities detected before payment

One interesting aspect to examine in the context of protection of the Communities’ financial interests is what proportion of irregularities is detected before any payment is effectively made to the beneficiaries.

This point can also provide concrete evidence concerning Member States’ preventive action.

Table S20 shows the total number of irregularities reported by each Member State (column A), the number of irregularities detected before any payment is made (column B), B as a percentage of A (column C), and what percentage of the total irregular financial amounts reported were identified before payment (column D).

Table S20: Detection of irregularities before payment

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However, these data could be biased by the attitude of not reporting to the Commission irregularities with no financial consequences for the Community budget.

3.3.5. Conclusions

– The most frequently occurring irregularity is “not eligible expenditure”,

– The most frequently occurring modus operandi in “suspected fraud” cases is “false or falsified supporting documents”,

– As a percentage of the total number of reported irregularities, “suspected fraud” stands at about 15%.

– The European Social Fund (ESF) seems to have a higher percentage of cases of “suspected fraud” and higher amounts involved than the other funds in the irregularities reported in 2005.

3.4. PRE-ACCESSION FUNDS

In 2005 the number of cases reported (first communications) increased by 45.8% in comparison to the previous year. The number of communications reported in 2005 makes up 49.5% of all irregularities reported so far. The highest growth in reported irregularities is in PHARE where the number of first communications doubled in 2005. The number of irregularities reported under ISPA remained unchanged on 25 in both 2004 and 2005. This is because ISPA projects are implemented only in acceding countries. The new Member States became eligible to participate in the Cohesion Fund.

3.4.1. Analysis of reported irregularities

After a peak in 2003 reported eligible expenditure (Community financing) has been steadily declining from €587.6 million to €415 million. Despite the fact that the total amount of eligible expenditure (Community financing) has been declining, only reported eligible expenditure in ISPA-funded projects declined in 2005 to reach a level very similar to the one in 2003. In PHARE reported eligible expenditure has been following a very strange pattern, peaking in 2003 but then slumping in 2004 to 4% of the level reported in previous year. Growth in 2005 was sharp. The number of cases increased 5.6-fold but it must be taken into account that the level was very low. All together the amounts reported under PHARE in 2004 and 2005 made up only 25% of the eligible amounts reported in 2003. Eligible amounts under SAPARD have been growing slowly after a rapid 10-fold increase in 2004 last year growth was only 21%.

Chart P10: Eligible amount (Community financing

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The general downward trend in eligible expenditure should not be attributed to the decline in irregularities but rather to greater prudence on the part of the Member States/acceding countries in reporting eligible expenditure and also in moving from ISPA to the Cohesion Fund. This argument is supported by the fact that the irregular amount has still been growing rapidly. In 2005 irregular amounts (Community financing) doubled in comparison to 2004. The highest growth was in ISPA as the irregular amounts increased 270-fold, after one year at a very low value. In PHARE growth was much smaller at 231% year on year. SAPARD was the only fund in which the irregular amounts declined (by 32%) in 2005.

Chart P11: Irregular amount (Community Financing)

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The amount recovered as a percentage of the irregular amount (Community financing) has been growing steadily to reach 21.9% in 2005. This marks an improvement on the average rate in previous years (16.8%). In 2005 the highest share was recovered under PHARE and ISPA (23%), while SAPARD achieved 16.9%. Over the years SAPARD has had the lowest figure for the amount recovered as a percentage of the irregular amount (only 5.8%). The best result was achieved in PHARE where 28% of the irregular amount was recovered.

The irregular amount still to be recovered in 2005 decreased to 19.6% (against the average of 19.4%). The lowest amount remaining to be recovered is in ISPA on 0.2% (€10 288) while the highest is in SAPARD with 49.4%. This is in line with the long-term trend where the lowest amount still to be recovered has been in ISPA (3.7%) and the highest in SAPARD (20.1%). Unfortunately Member States and acceding countries have been inconsistent about completing point 14 of the irregularity reports (amounts not yet paid) which allows only broad estimates about the irregular amount detected before payment. Logically, this should bridge the gap between the irregular amount and the sum recovered and to be recovered. Based on that assumption, an estimated 60% of the irregular amount was not paid to beneficiaries committing irregularities.

Chart P12: Amount to be recovered (Community Financing)

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3.4.2. Conclusions

– The amount of eligible expenditure (Community financing) has been declining despite the growth in declared eligible expenditure under SAPARD and PHARE. ISPA accounts for the highest share but this is declining as the sum of reported eligible expenditure for all three funds declines.

– The sum of irregular amounts (Community financing) under all three funds has been increasing since reporting of irregularities began. The highest growth in the irregular amounts in 2005 was in ISPA.

– The proportion of irregular amounts (Community financing) recovered has been growing steadily in recent years. The best recovery rate (as a percentage of irregular amounts) can be observed in PHARE.

4. FINANCIAL MONITORING AND RECOVERY SITUATION

4.1. Traditional Own Resources

Decision 2000/597/EC [15] on own resources, and in particular Article 8, stipulates that the Member States are responsible for collecting TOR. This responsibility applies both to established own resources and to amounts that should have been established. The Commission performs compliance audits to ensure that Member States meet their obligations to recover these resources under the Community provisions in force.

In 2005 checks on Member States’ follow-up of recovery were based mainly on the following activities: (1) deciding, in the framework of the procedure for writing off irrecoverable TOR amounts over a certain threshold value, on Member States’ requests to be released from the obligation to make those amounts available and (2) applying the principle of financial responsibility, recently confirmed by the European Court of Justice, for certain errors made by national administrations.

4.1.1. Procedure for managing Member States' requests for write-off

Member States are required to take the necessary measures to make TOR available, except in cases of force majeure or where recovery proves to be impossible for reasons which cannot be attributed to the Member State concerned. Cases of write-off (where the open amount of duties involved, after the adoption of Regulation 2028/2004 of 16 November 2004, exceeds €50 000) are to be referred to the Commission for examination. Where the Member State can demonstrate that the lack of recovery cannot be attributed to it, the demand for write-off is accepted. If not, that Member State has to bear the financial consequences of the failure to establish own resources and make them available to the Commission, on the basis of Article 8 of Decision 2000/597/EC and of Articles 2 and 17 of Regulation 1150/2000.

In 2005, under Article 17(2) of Regulation 1150/2000, 32 new requests for exemption of provision of TOR, totalling €5 571 723, were communicated to the Commission by five (5) Member States. A total of 138 requests were processed in 2005 [16]. The results, in financial terms, of those 138 requests break down as follows (updated on 19 June 2006) [17]:

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Examination of the diligence of the Member States constitutes a very effective means of gauging Member States' recovery activities and encourages national administrations to intensify them, since lack of diligence leading to failure to recover will result in Member States being financially liable for the amounts concerned.

Since Regulation 2028/2004 amending Regulation 1150/2000 entered into force on 16 November 2004 Member States are required to provide the Commission with information on cases exceeding €50 000. A Task Force created within the Commission unit responsible (in DG Budget) is dealing with the anticipated increase in the number of cases.

4.1.2. Principle of Member States' financial responsibility for their administrative errors

Under the Own Resources Decision, Member States are responsible for collecting TOR (in return for performing this task, and to support sound and efficient management of public finances, they may keep 25% of the amounts recovered). Any negligence on the part of the Member States which results in a loss of TOR, however, gives rise to a financial liability towards the Union’s budget. In this way the Commission holds the administrations financially responsible for their own errors [18].

The Commission’s position was confirmed by the European Court of Justice, which, on 15 November 2005, ruled that the Commission could hold Member States financially responsible when, in cases where all conditions for establishing a customs debt had been fulfilled, they had to transfer TOR to the Commission but did not [19]. As a consequence of that Court judgment, in December 2005 DG Budget sent reminders to all Member States concerned, asking them to make available the amounts due in connection with pending cases about financial responsibility for administrative errors committed, including cases arising in the course of the follow-up of sector letters from the Court of Auditors or from inspections carried out by DG Budget itself. These reminders covered a total of €58 484 760. The underlying amounts had already been claimed by DG Budget during the period from 1999 to 2005. Amounts mentioned before are nett-amounts to which belated interest is still to be added.

All cases of financial responsibility managed by DG Budget up until the end of 2005 add up to a total of €120 825 191. This includes not only financial responsibilities for administrative errors made by the Member States (as mentioned earlier) but also responsibilities for amounts which have become time-barred as a result of the customs authorities’ failure to act, amounts irrecoverable for reasons attributable to the Member States and failure to enter duties because the relevant authorities had created legitimate expectations on the part of the person liable for payment (unlawful authorisations).

4.2. AGRICULTURAL EXPENDITURE (Guarantee Section) (Annexes 3, 4 and 5)

In 2005 Member States communicated, pursuant to Regulation No 595/91, 3 193 irregularities involving a total amount of €102 111 746 (see Annex 4).

The situation as regards recovery in 2005 (see Annex 5) is as follows:

– the overall sum to be recovered was €2 029 649 866 for the communications prior to 2005;

– €72 355 808 was added to this amount by the communications received during 2005;

– the amounts relating to cases for which a legal procedure is on-going add up to approximately €820 884 434 for the period prior to 2005;

– finally, in the same period €303 962 370 was declared irrecoverable pursuant to Article 5(2) of Regulation No 595/91 and is awaiting a formal clearance of accounts decision.

4.3. Structural measures (Annexes 6, 7, 8 and 9)

In 2005 Member States communicated, pursuant to Regulation No 1681/94, a total of 3 356 irregularities involving a total of €466 617 970 (see Annex 7).

The situation as regards recovery in 2005 (see Annex 8) is as follows:

– the sum to be recovered was €303 373 722;

– in the same period €1 422 165 was declared irrecoverable pursuant to Article 5 (2) of Regulation No. 1681/94, and is awaiting a formal decision.

Pursuant to Regulation No 1831/94, Member States reported 214 irregularities involving a total of €134 198 323 (see Annex 9), of which €42 080 807 remain to be recovered.

4.4. Pre-accession funds (Annexes 11, 12, 13 and 14)

In 2005 Member States and acceding countries communicated 331 irregularities involving a total irregular amount of €26.5 million, including Community financing of €16.8 million.

The situation as regards recovery in 2005 is as follows:

– the amount of irregular Community financing already recovered totals €3.7 million for cases reported in 2005 and €9.1 million for all years;

– the sum of Community financing to be recovered is €3.3 million for cases reported in 2005 (see Annexes 12 to 14);

– the total amount of irregular Community financing still to be recovered is €5.8 million.

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[1] See, in particular, Article 3(1) of Council Regulation (EEC) No 595/91 of 4 March 1991 (OJ L 67, 14.3.1997), Commission Regulations (EC) No 1681/94 of 11 July 1994 (OJ L 178, 12.7.1994) and 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] Regulation 1681/94 applies to the Structural Funds, i.e. the European Regional Development Fund (ERDF), the European Social Fund (ESF), the European Agricultural Guidance and Guarantee Fund (EAGGF)–Guidance Section and the Financial Instrument for Fisheries Guidance (FIFG).

[3] Regulation 1831/94 applies to the Cohesion Fund.

[4] See the definition in Article 1 of the Convention on the protection of the Community’s financial interests of 26 July 1995 (OJ C 316, 27.11.1995), which entered into force on 17 October 2002.

[5] The Commission opened a dialogue with the representatives of the Member States to clarify basic concepts and to reassure Member States that notification of irregularities in no way prejudices the outcome of criminal proceedings. A working document on the practical arrangements for notification of irregularities has been compiled. Discussions are continuing in the Advisory Committee on the Coordination of Fraud Prevention.

[6] The four Structural Funds are: the European Regional Development Fund (ERDF), supporting primarily productive investment, infrastructure and development of SMEs; the European Social Fund (ESF), supporting measures to promote employment (education systems, vocational training and recruitment aids); the Guidance Section of the European Agricultural Guidance and Guarantee Fund, supporting measures for the adjustment of agricultural structures and rural development; the Financial Instrument for Fisheries Guidance (FIFG), supporting measures for the adjustment of the fisheries sector and the “accompanying measures” of the common fisheries policy.

[7] Probably in the course of 2006 for the 1994-1999 programming period.

[8] It should also be borne in mind that, in practice, the information system concerning irregularities for the Structural Funds and the Cohesion Fund was established by two separate Regulations, Regulations 1681/94 and 1831/94 respectively. In previous reports these data were analysed together, inter alia in view of the small number of reports relating to the Cohesion Fund. This trend was inverted in 2003-2004. A new approach therefore seems justifiable.

[9] Based on the date on which the report was sent.

[10] DG Budget – Allocation of 2004 EU expenditure by Member States:

- http://ec.europa.eu/budget/agenda2000/reports_en.htm

[11] Council Regulation (EEC) No 4045/89 relates to the scrutiny of the commercial documents of entities receiving or making payments relating directly or indirectly to the system of financing by the Guarantee Section of the EAGGF in order to ascertain whether transactions forming part of the system of financing by the Guarantee Section of the EAGGF have actually been carried out and have been executed correctly.

[12] Council Regulation (EEC) No 386/90 lays down certain procedures for monitoring whether operations conferring entitlement to the payment of refunds on, and all other amounts in respect of, export transactions have been actually carried out and executed correctly.

[13] Member States are listed in order of Structural Funds allocation (programming period 2000-2006), from Luxembourg with the lowest amount to Spain with the highest.

[14] Therefore, as some irregularities have been counted more than once, the total is distorted. This is why the ‘total’ row has been omitted. The values indicated in the “indicative implicated amount” and “indicative average amount” columns are only “virtual”.

[15] Council Decision 2000/597/EC, Euratom of 29 September 2000 (OJ L 253, 7.10.2000) which replaced Decision 94/728.

[16] 3 cases from Belgium, 94 from Germany, 1 from Denmark, 2 from Spain, 1 from Greece, 4 from Ireland, 2 from Italy, 23 from the Netherlands, 2 from Portugal and 6 from the UK.

[17] At the moment the breakdown between the amounts for each heading is only estimated because sometimes the same case is partly accepted, not suitable or refused at the same time. Additional information from the Member States (in particular on the proportion of the guarantees) is then needed to decide the final classification and quantification of the amounts concerned.

[18] These cases are identified on the basis of Articles 220(2)(b) (non-perceptible administrative errors) and 221(3) (time-barring resulting from the inactivity of the customs) of the Community Customs Code, of Articles 869 and 889 of the Provisions for application of the Code or on the basis of non-observance, by the customs administration, of articles of the Community Customs Code giving rise to a situation of legitimate expectations on the part of the operator.

[19] Case C-329/02 of 15 November 2005.

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