# EUR-Lex - 52011SC1108 - EN

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# 52011SC1108

**COMMISSION STAFF WORKING PAPER Statistical Evaluation of Irregularities- Own Resources, Agriculture, Cohesion Policy, Pre-Accession Funds and Direct Expenditure -Year 2010 /* SEC/2011/1108final */**

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TABLE OF CONTENTS

LIST OF ABBREVIATIONS...................................................................................................... 6

PART I – INTRODUCTION AND METHODOLOGY.............................................................. 8

1........... INTRODUCTION........................................................................................................ 8

1.1........ Scope of the document................................................................................................... 8

1.2........ Structure of the document............................................................................................... 8

2........... THE EUROPEAN UNION BUDGET........................................................................... 9

2.1........ Revenues........................................................................................................................ 9

2.2........ Expenditure.................................................................................................................. 10

2.3........ Management of the Budget........................................................................................... 11

3........... THE LEGAL FRAMEWORK FOR IRREGULARITIES REPORTING...................... 12

3.1........ The legal framework..................................................................................................... 12

3.1.1..... The reporting obligation................................................................................................ 13

3.1.2..... Derogations to the reporting obligation.......................................................................... 14

3.2........ Implementation of the Reporting Obligation................................................................... 14

4........... DEFINITIONS............................................................................................................ 15

4.1........ Legal definitions............................................................................................................ 15

4.1.1..... Irregularity.................................................................................................................... 15

4.1.2..... Fraud........................................................................................................................... 15

4.1.3..... Suspected fraud............................................................................................................ 16

4.2........ Indicators..................................................................................................................... 17

4.2.1..... Irregularity and Fraud Rates.......................................................................................... 17

4.2.2..... Fraud Frequency and Fraud Amounts Levels................................................................ 17

5........... METHODOLOGY...................................................................................................... 18

5.1........ Data Capturing – The irregularity reporting systems....................................................... 18

5.1.1..... OWNRES................................................................................................................... 18

5.1.2..... Irregularity Management System (IMS)......................................................................... 18

5.1.2.1.. The modules................................................................................................................. 18

5.1.2.2.. The national structures and users................................................................................... 19

5.1.2.3.. Data input and data quality............................................................................................ 21

5.1.2.4.. Impact of IMS on irregularity reporting.......................................................................... 22

5.1.3..... ABAC – Recovery context........................................................................................... 22

5.2........ Data analysis – cases of irregularity and (suspected) fraud.............................................. 23

PART II - REVENUES.............................................................................................................. 25

6........... TRADITIONAL OWN RESOURCES (ANNEXES 3-13).......................................... 25

6.1........ Management of Traditional Own Resources (TOR)....................................................... 25

6.1.1..... Monitoring of establishment and recovery of TOR......................................................... 25

6.1.2..... Procedure for managing Member States’ reports for write-off........................................ 26

6.1.3..... Particular cases of Member State failure to recover TOR............................................... 27

6.2........ Reporting discipline....................................................................................................... 28

6.2.1..... Year of discovery versus year reported......................................................................... 28

6.3........ General trends.............................................................................................................. 29

6.3.1..... Types of irregularity and fraud....................................................................................... 29

6.3.2..... TOR and cigarettes....................................................................................................... 31

6.3.3..... Data main sectors TOR................................................................................................ 31

6.4........ Detection of fraud and irregularity.................................................................................. 31

6.4.1..... Member States' control systems – Method of detection expressed in
cases.................... 31

6.4.2..... Member States' control systems – Method of detection expressed in
monetary terms..... 32

6.4.3..... Customs procedures affected to fraud and irregularity in 2010....................................... 33

6.4.4..... Percentage of established or estimated amounts in OWNRES to
collected TOR............ 35

6.5........ Recovery...................................................................................................................... 37

6.5.1..... Recovery rate............................................................................................................... 38

6.6........ Conclusions.................................................................................................................. 38

PART III - EXPENDITURE...................................................................................................... 40

7........... AGRICULTURAL EXPENDITURE (Annexes 13-14)................................................ 40

7.1........ Introduction.................................................................................................................. 40

7.2........ Financial Year 2010..................................................................................................... 42

7.2.1..... Financial Year 2010: cases reported............................................................................. 42

7.2.2..... Financial Year 2010: reporting discipline....................................................................... 43

7.2.3..... Financial Year 2010: financial follow up of irregularity cases........................................... 45

7.3........ General trends.............................................................................................................. 48

7.3.1..... Financial Years 2006-2010: impact on the budget......................................................... 48

7.3.2..... Financial Years 2006-2010: cases classified as suspected fraud..................................... 51

7.3.3..... Financial Years 2006-2010: overview per budget post.................................................. 53

7.3.3.1.. Financial Years 2006-2010: decoupled direct aids (B-050301)..................................... 55

7.4........ Specific analysis............................................................................................................ 57

7.4.1..... Financial Years 2004-2005: expenditures and cases reported per
Member State........... 58

7.4.2..... Financial Years 2004-2005: expenditures and cases reported per
budget post............... 61

7.4.2.1.. Financial Years 2004-2005: fruits and vegetables (B-050208)....................................... 63

7.4.2.2.. Financial Years 2004-2005: direct payment for arable crops
(B-050203)...................... 66

7.4.2.3.. Financial Years 2004-2005: beef and veal (B-050302)................................................. 71

7.4.2.4.. Financial Years 2004-2005: rural development (B-0504xx)........................................... 74

7.4.2.5.. Financial Years 2004-2005: milk and milk products (B-050301)................................... 76

7.4.2.6.. Financial Years 2004-2005: olive oil (B-050206).......................................................... 77

7.5........ Conclusions.................................................................................................................. 78

7.5.1..... Financial Year 2010..................................................................................................... 78

7.5.2..... Financial Years 2006-2010.......................................................................................... 79

7.5.3..... Financial Years 2004-2005.......................................................................................... 79

8........... European Fisheries Fund............................................................................................... 80

9........... COHESION POLICY (Annexes 15-20)...................................................................... 81

9.1........ Reporting Discipline...................................................................................................... 81

9.2........ General Trends............................................................................................................. 82

9.2.1..... Yearly trends................................................................................................................ 82

9.2.2..... Detection of irregularities............................................................................................... 85

9.2.3..... Types of irregularity...................................................................................................... 86

9.2.4..... Suspected frauds.......................................................................................................... 86

9.3........ Specific analysis – Analysis by Programming Period: 2000-2006 and
2007-2013.......... 89

9.3.1..... Irregularities related to the programming period 2000-2006 –
Structural Funds.............. 89

9.3.2..... Established fraud – Structural Funds.............................................................................. 95

9.3.3..... Irregularities related to the programming period 2000-2006 –
Cohesion Fund................ 96

9.3.4..... Irregularities related to the programming period 2007-2013........................................... 98

9.4........ Conclusions.................................................................................................................. 99

9.4.1..... Structural Actions......................................................................................................... 99

9.4.2..... Programming Period 2000-2006................................................................................... 99

9.4.3..... Cohesion Fund........................................................................................................... 100

10......... Pre-accession funds (Annexes 21-22)......................................................................... 101

10.1...... Reporting discipline..................................................................................................... 102

10.2...... General Trends........................................................................................................... 103

10.2.1... Overall trend.............................................................................................................. 103

10.2.2... Irregularities affecting different funds............................................................................ 105

10.2.3... Amounts involved and impact on budget...................................................................... 106

10.2.4... Detection of irregularities............................................................................................. 106

10.2.5... Detected types of irregularities / modus operandi......................................................... 107

10.3...... Specific analysis.......................................................................................................... 107

10.3.1... Suspected and established fraud.................................................................................. 107

10.3.2... Cases of suspected fraud related to the programming period 2002-2006..................... 109

10.3.3... Fraud rates related to SAPARD – programming period 2002-2006............................ 109

10.3.4... Estimated Fraud Rate for the Programming Period 2002-2006 – all
funds.................... 111

10.3.5... Recovery.................................................................................................................... 111

10.4...... Conclusions................................................................................................................ 112

11......... DIRECT EXPENDITURE – CENTRALISED DIRECT MANAGEMENT............... 114

11.1...... Methodology and scope............................................................................................. 114

11.2...... General analysis.......................................................................................................... 114

11.2.1... Financial amounts involved.......................................................................................... 114

11.2.2... Financial amounts involved by geographical area and Member State............................ 116

11.2.3... Method of detection................................................................................................... 119

11.2.4... Types of irregularity.................................................................................................... 121

11.3...... Specific analysis.......................................................................................................... 124

11.3.1... Irregularity versus Suspected Fraud............................................................................. 124

11.3.2... Time delay.................................................................................................................. 124

11.3.3... Trends........................................................................................................................ 125

11.4...... Recovery.................................................................................................................... 126

11.5...... Conclusions................................................................................................................ 127

ANNEXES.............................................................................................................................. 129

LIST OF ABBREVIATIONS

ABAC || Accrual Based Accounting

AFIS || Anti-Fraud Information System

CN || Combined Nomenclature

COCOLAF || Advisory Committee for the Coordination of Fraud Prevention

DG AGRI || Directorate General for Agriculture and Rural Development

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

DG MARE || Directorate General for Maritime Affairs and Fisheries

DG REGIO || Directorate General for Regional Policy

DG TAXUD || Directorate General for Taxation and Customs Union

EAFRD || European Agricultural Fund for Rural Development

EAGF || European Agricultural Guarantee Fund

EAGGF || European Agricultural Guidance and Guarantee Fund

EC || European Commission

EFF || European Fishery Fund

EP || European Parliament

ERDF || European Regional Development Fund

ESF || European Social Fund

EU || European Union

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

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

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

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

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

EUR || Euro

EURATOM || European Atomic Energy Community

FAL || Fraud Amount Level

FFL || Fraud Frequency Level

FIFG || Financial Instrument for Fishery Guidance

FinR || Financial Regulation

FrR || Fraud Rate

FY || Financial Year

GNI || Gross National Income

IMS || Irregularity Management System

IPA || Instrument for Pre-Accession

IrR || Irregularity Rate

OLAF || European Anti-Fraud Office

OWNRES || Own Resources

PAA || Pre-Accession Assistance

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

TFEU || Treaty on the Functioning of the European Union

TOR || Traditional Own Resources

VAT || Value Added Tax

WOMIS || Write-Off Management and Information System

PART I –
INTRODUCTION AND METHODOLOGY

1. 
INTRODUCTION
1.1. 
Scope of the document

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

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

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

Being based on the notifications of cases of
irregularities and suspected and established fraud, the paragraphs dedicated to
recovery (with the exception of that related to Agriculture) are limited to the
results of the actions undertaken by national authorities to recuperate amounts
unduly paid to beneficiaries (mostly private economic operators). Moreover, as explained
more in details in paragraph 3.1.2. from these analyses are excluded recoveries
concerning irregularities whose amount does not exceed EUR 10 000. Chapter
7 (Agricultural expenditure) covers all recoveries.

In this respect, the present document differs
in scope and results from other Commission publications dealing with financial
corrections and recoveries[2]
following the detection of irregularities, as these concern actions taken by
the Commission in relation to Member States. This document, instead, reflects
the amounts recovered by the national authorities and not by the Commission
services.

The exception is Chapter 11 of this document,
dedicated to the expenditure directly managed by the Commission services, which
uses data extracted from the Commission Accrual Based Accounting (ABAC) system.

1.2. 
Structure of the document

The present document is divided in three parts.

The first introductory part is composed of five
chapters which contain, respectively: the structure and scope of the document;
a short description of the European Budget and its different “management”
modes; a summary of the legal background for the reporting of irregularities;
the definitions of the specific terms used throughout the document; and the
methodology adopted for data capturing and analysing (the reporting system and
the techniques adopted for the qualification of the irregularities).

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

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

2. 
THE EUROPEAN UNION BUDGET

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

2.1. 
Revenues

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

Own resources are of three kinds:

– 
Traditional own resources (TOR) — these mainly consist of duties that are charged on imports
of products coming from a non-EU state.

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

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

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

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

Chart 2-1 shows how the four elements indicated
above contribute to the EU budget, while Annex 1 provides a summary of
financing by type of own resource and by Member State.

Chart 2‑1: Source of financial resource to the
European Budget

2.2. 
Expenditure

The EU Budget for 2010 includes 6 headings of
expenditure:

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

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

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

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

– 
Other expenditure
includes the running costs for the European Institutions and some
compensation to Bulgaria and Romania.

Chart 2-2 shows the distribution of the EU
financial resources among the six different headings, while Annex 2 provides a
more detailed overview of the 2010 budget.

Chart 2‑2: Distribution of the expenditure financial
resource by Budget Heading

2.3. 
Management of the Budget

According to article 317 of the TFUE, the
Commission shall implement the budget. Council Regulation (EC, Euratom) No
1605/2002[3]
of 25 June 2002 on the Financial Regulation (FinR)[4] applicable to the general
budget of the EU indicates that the Commission implements the budget:

(1) 
on a centralised basis: implementation tasks are
performed either directly by its departments or indirectly by executive
agencies created by the Commission, bodies set up by the EU - provided that
this is compatible with the tasks set out in the basic act - and, subject to
certain conditions, national public-sector bodies or bodies governed by private
law with a public-service mission;

(2) 
on a shared or decentralised basis:
implementation tasks are delegated to the Member States (shared management) or
third countries (decentralised management); the Commission applies
clearance-of-accounts procedures or financial correction mechanisms enabling it
to assume final responsibility for the implementation of the budget;

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

3. 
THE LEGAL FRAMEWORK FOR IRREGULARITIES REPORTING
3.1. 
The legal framework

European legislation provides for the
protection of the Union’s financial interests in all areas of activity[5]. The FinR sets the principles
and rules for the correct implementation of the budget. Member States are
required to notify the European Commission (EC) of evidence of fraud and other
irregularities. This need is particularly evident in those sectors of the EU budget
where the main responsibility for management is with the Member States, namely,
in the fields of Agriculture and Cohesion Policy (on the expenditure side) and
Own Resources (on the revenue side). In these areas, Member States must inform
the Commission of all irregularities involving more than EUR 10 000 of EU
finances. This applies at all stages in the procedure for recovering monies
unduly paid or not received.

Regulation No 1150/2000 specifies the
requirement for own resources and Regulation No 1848/2006 for the agriculture
sector. For the Cohesion Policy, which runs over multi-annual programmes the
legal framework is more complex and is covered by Regulations Nos 1681/94[6] and 1831/94[7] for the programming periods
until the 2000-2006 and by Regulation No 1828/2006[8] for the period 2007-2013[9]. Regulation No 498/2007 covers
the European Fishery Fund (EFF).

The obligation to report irregularities in the
area of pre-accession assistance is established in the Financing
Agreements/Memoranda signed between the acceding countries, Candidate countries
and the European Community/Union and is in accordance with the provisions of
Commission Regulation (EC) 1681/1994[10]
and 1828/2006[11].
This obligation is yet enhanced by the Commission decision granting conferral
of management on extended decentralised basis (EDIS).

3.1.1. 
The reporting obligation

Member States shall report to the EC any
irregularities which have been the subject of a primary administrative or
judicial finding, within two months following the end of each quarter. Therefore,
the reporting period is divided in four quarters the last of which has as
deadline the end of February of the following year[12].

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

The information to be submitted concerns, among
others:

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

(2) 
The detection method and the modus operandi;

(3) 
The financial impact of the irregularity;

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

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

Updating communications provide relevant information
about the administrative and judicial follow-up of the irregularities. In the
areas of Cohesion and Pre-Accession information about financial follow-up has
to be provided for irregularities related to previous programming periods
(until 2000-2006 included)[13].

The reporting of irregularities shall happen by
electronic means, using the modules provided by the EC (see Chapter 5 about the
electronic reporting systems).

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

3.1.2. 
Derogations to the reporting obligation

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

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

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

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

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

3.2. 
Implementation of the Reporting Obligation

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

The Commission works in close cooperation with
the Member States to improve the notification system for irregularities, in
particular to clarify the concepts of “fraud” and “irregularity”[14] and as a result of this, some measures
of the possible economic impact of fraud in certain sectors have been made.
However, for the reasons outlined above, the figures presented in the document
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. The findings can not be considered as empirical evidence of
the level of fraud and irregularity.

4. 
DEFINITIONS

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

4.1. 
Legal definitions
4.1.1. 
Irregularity

Irregularity:
means any infringement of a provision of European law resulting from an act or
omission by an economic operator which has, or would have, the effect of
prejudicing the general budget of the European Union or budgets managed by it, either
by reducing or losing revenue accruing from own resources collected directly on
behalf of the Union, or by an unjustified item of expenditure[15].

4.1.2. 
Fraud

Fraud: affecting
the European Communities' financial interests shall consist of[16]:

a) in respect of expenditure, any intentional
act or omission relating to:

– 
the use or presentation of false, incorrect or
incomplete statements or documents, which has as its effect the
misappropriation or wrongful retention of funds from the general budget of the
European Communities or budgets managed by, or on behalf of, the European
Communities;

– 
non-disclosure of information in violation of a
specific obligation, with the same effect;

– 
the misapplication of such funds for purposes
other than those for which they were originally granted;

b) in respect of revenue, any intentional act
or omission relating to:

– 
the use or presentation of false, incorrect or
incomplete statements or documents, which has as its effect the illegal
diminution of the resources of the general budget of the European Communities
or budgets managed by, or on behalf of, the European Communities;

– 
non-disclosure of information in violation of a
specific obligation, with the same effect;

– 
misapplication of a legally obtained benefit,
with the same effect.”

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

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

Therefore, the distinction between irregularities and
fraud is that fraud is a criminal act that can only be determined by the
outcome of judicial proceedings. As such, it is only when the judicial
procedure has come to an end that the actual amount of fraud can be determined.
While awaiting these results, the Commission works on the basis of the
information supplied by Member States concerning cases of irregularities some
of which, in the opinion of the reporting Member States, give rise to
suspicions of fraud (as explained in paragraph 4.1.3). The Commission's
statistical assessment of and ability to respond to, irregularities are
influenced by the accuracy and timeliness of the notifications made by the
Member States.

4.1.3. 
Suspected fraud

Suspected fraud[17]: means an irregularity giving rise to the
initiation of administrative and/or judicial proceedings at national level in
order to establish the presence of intentional behaviour, in particular fraud,
such as is referred to in Article 1(1), point (a), of the PIF Convention.

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

4.2. 
Indicators
4.2.1. 
Irregularity and Fraud Rates

The Irregularity Rate (IrR) is
calculated using Equation 4-1 below:

Equation 4‑1: Irregularity Rate

The Fraud Rate (FrR) is calculated using
Equation 4-2 below:

Equation 4‑2: Fraud Rate

The IrR and FrR can be calculated by financial
year (as in the case of the Agriculture sector – see Chapter 7) or on the
entire Programming Period (as in the case of Structural Funds – see Chapter 9)
and by Member State. The FrR is calculated using amounts linked to cases of
suspected and established fraud[18].

4.2.2. 
Fraud Frequency and Fraud Amounts Levels

The Fraud Frequency Level (FFL) represents the
percentage of cases qualified as suspected frauds on the total number of
reported irregularities and is calculated using Equation 4-3 below.

Equation 4‑3: Fraud Frequency Level

The Fraud Amounts Level (FAL) represents the
percentage of financial amounts involved in cases qualified as suspected frauds
on the total reported financial amounts affected by irregularities and it is
calculated using Equation 4-4 below.

Equation 4‑4: Fraud Amounts Level

FFL and FAL can be calculated by financial year
(as in the case of the Agriculture sector – see Chapter 7) or on an entire
Programming Period (as in the case of Structural Funds – see Chapter 9) and by
Member State.

5. 
METHODOLOGY
5.1. 
Data Capturing – The irregularity reporting
systems

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

5.1.1. 
OWNRES

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

5.1.2. 
Irregularity Management System (IMS)
5.1.2.1. 
The modules

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

IMS is a complex application divided in several
modules which enable Member States to report cases of irregularities and
(suspected) fraud under the different sectoral legislations mentioned in
chapter 3. The modules are named after the corresponding Regulation, with the
exception of the two modules related to Pre-Accession Assistance.

Figure 5-1 summarises the architecture of IMS
and distinguishes between modules under development (framed by a dotted line)
and modules currently operational (framed by a continuous line).

Figure 5‑1: IMS architecture

5.1.2.2. 
The national structures and users

According to their competencies and
responsibilities national authorities have access to the module(s) which
is(are) relevant for them. IMS flexibility allows a cascading system to be set
up: national organisations can be arranged in a hierarchical structure with
different levels of responsibility, in which the superior level approves the
communication prepared by the inferior and forwards it to the next level or to
OLAF. Within each organisation, users can receive different roles such as
creator (creates the communication of irregularity), manager (validates it and
forwards it to the next level) and observer (read-only access). 584 national
organisations and 3 572 users are set up in IMS. Some of them may be
responsible for more than 1 module.

Figure 5-2 provides an example of a national
structure, showing the complexity that the system allows and supports.

Figure 5‑2: Example of a national reporting structure

IMS does not exclusively support the needs of
the organisations to structure the reporting task, but, being a web based
application that can be accessed directly via internet, also introduces an
extended accessibility to the system. This has led to an enormous increase in the
number of users if compared to the previous electronic reporting system (from
less than 200 to 3 572 users).

Table 5-1 summarises the number of
organisations and users per Member State and per module[19].

Table 5‑1: number of organisations and users per
Member State and module

5.1.2.3. 
Data input and data quality

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

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

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

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

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

5.1.2.4. 
Impact of IMS on irregularity reporting

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

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

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

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

5.1.3. 
ABAC – Recovery context

The ABAC system is a transversal, transactional information system allowing
for the execution and monitoring of all budgetary and accounting operations by
the Commission. The system was developed by the Commission to facilitate
compliance with the requirements of the Financial Regulation and its implementing
rules.

One of the functionalities of the ABAC system
is the ‘Recovery Context’, which gathers detailed information on recovery
orders issued by the Commission services and registered in ABAC. The
information introduced into the recovery context relates, amongst others, to
the qualification of the recovery order: financial officers have
to indicate for each recovery order whether it relates to an error, an
irregularity or a suspected fraud that has been identified in the
implementation of a grant agreement or contract. In case the recovery order is
qualified as 'suspected fraud', OLAF has to be notified. For each recovery
order, information is given on the method of detection as well as the type of
irregularity or suspected fraud that constitutes the basis for the recovery.

The recovery context is a relatively new
functionality within ABAC. The collection of data from the Commission services
only started recently and the current data available in ABAC refer to recovery
orders issued since 2008. This first exercise conducted in 2008 revealed a
number of practical problems, which are related to different interpretations
throughout the Commission of definitions used in ABAC; the omission of certain
information in the 'Recovery Context' and the link of the information with
other data in ABAC. The Commission has tried to diminish the impact of these
shortcomings to provide more accurate analysis of the irregularities in
expenditures managed directly by the Commission. Nevertheless, the limitations
of the data have not been removed completely and they might still influence the
analysis.

5.2. 
Data analysis – cases of irregularity and
(suspected) fraud

The analyses presented in parts II and III of
the present document are based on the cases of irregularities and (suspected)
fraud gathered through the tools described in paragraph 5.1. The extent to
which those systems are implemented and correctly used influences the accuracy
and completeness of the analytical results.

Each chapter devotes a specific attention to
the analysis cases of suspected and established fraud detected and reported by
national authorities and Commission services. For this reason, the distinction
between simple irregularities and instances of possible fraud is one of the
bases for a correct interpretation of the data.

As already indicated in paragraph 4.1.3, in
their communications of irregularity to the Commission, Member States have been
requested to indicate whether a reported irregularity can be regarded as
'suspected fraud'. This action is performed in IMS by filling a specific field
(which is mandatory in all modules except module 1848) which allows classifying
any case under three possible categories: (a) irregularity; (b) suspected
fraud; (c) established fraud. Therefore, all Member States having implemented
IMS specify the requested information.

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

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

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

(2) 
the case is classified as “irregularity”, but
one or more of the modus operandi described in Table 5-2 are indicated.

Table 5‑2: List of modus operandi conflicting
with the classification ‘irregularity’

For the purposes of the analyses conducted in Chapters
8 and 9 of this document, in presence of one of the two conditions mentioned
above, the case has been considered as a “suspected fraud” even in absence of
such classification from the national authorities.

PART II - REVENUES

6. 
TRADITIONAL OWN RESOURCES (ANNEXES 3-13)
6.1. 
Management of Traditional Own Resources (TOR)

The Union must have access to Traditional Own
Resources (‘TOR’)[20]
under the best possible conditions. In conformity with Regulation (EC, EURATOM)
No 1150/2000[21]
Member States are responsible for making TOR available to the Commission,
within the deadlines set, that they have established. Established amounts of
customs or agricultural duties, that have been recovered, and debts, that are
guaranteed and not under appeal, are to be made available via the A-account.
However, if TOR have been established by a Member State but not yet recovered
and if no security has been provided or the secured amount has been disputed,
Member States may enter these TOR amounts in the B-account. These
amounts of TOR are not made available until actually recovered. Most fraud and
irregularity cases relate to B-account items.

6.1.1. 
Monitoring of establishment and recovery of TOR

In order to get the right picture of Member
States’ TOR recovery activity, it is important to keep in mind that over 97% of
all amounts of TOR established are subsequently recovered without any particular
problem. These amounts are entered in the A-account and made available to the
Commission. This covers most of the ‘normal’ import flows where release for
free circulation gives rise to a customs debt. The remaining exceptional items
are entered in the B-account. This proportion should be borne in mind, when
evaluating Member States’ recovery activity.

In return for their collection task, and to
support sound and efficient management of public finances, Member States may
keep 25% of the amounts recovered. In its capacity as Authorising Officer
responsible for executing the EU budget, the Commission (DG Budget as delegated
Authorising Officer) monitors Member
State activity concerning establishing and recovering TOR.

The following three methods are used:

(1) 
Overall monitoring of recovery of TOR via the
write-off procedure;

(2) 
Regular inspection in Member States of the
establishment and recovery of TOR and B-account entries;

(3) 
Specific monitoring (in close cooperation with
OLAF, DG TAXUD and DG AGRI) of Member States’ follow-up of recovery in
individual cases, which have a significant financial impact and usually involve
Mutual Administrative Assistance.

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

6.1.2. 
Procedure for managing Member States’ reports for
write-off

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

(1) 
for reasons of force majeure; or

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

There are two ways to conclude that amounts of TOR
have become irrecoverable. The first is by a decision of a Member State declaring
that they cannot be recovered — this declaration may be made at any time.
However, TOR must be deemed irrecoverable by a Member State at the
latest five years from the date on which the debt was established, or in the
event of an administrative or judicial appeal, the final decision was given, or
the last part-payment to the debt was made, whichever is the later. If the
amount of the written-off debt is less than EUR 50 000, Member States do
not have to communicate the case to the Commission, unless the Commission makes
a specific request. However, if the irrecoverable amount of TOR exceeds EUR 50 000,
the write-off must be reported to the Commission which has to decide whether
the necessary conditions are fulfilled in order to release the Member State
from the obligation to make the TOR available.

An amendment to Regulation No 1150/2000[22] introduced certain timeframes
within which a Member State has to provide the Commission with information on
amounts of established entitlements of TOR declared or deemed irrecoverable
where these exceed EUR 50 000. Consequently, in years 2008 and 2009 the
number of Member States' write-off reports increased significantly. A new IT application
called WOMIS[23]
was introduced in January 2010 to support Member States and the Commission in
managing write-off reports. Member States submit their requests to be released
from the obligation to make the TOR available directly via WOMIS. Experience in
the first year showed that it cuts delays in the process and permits improved
up-to-date and easy-to-obtain management information. In 2012 a WOMIS version
2.0 will be released.

In 2010 116 write-off reports amounting to EUR
42 million were communicated via WOMIS to the Commission by 13 Member States. The
following table shows that thereof 53 cases have been processed by the
Commission in 2010 with the following results:

Table
OR1: Write-off reports treated in 2010

MS || Cases[24] || Total amount || Acceptance || Refusal || Additional information request

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

AT || 12 || 1 730 716 || 2 || 254 706 || || || 10 || 1 476 010

CZ || 1 || 73 305 || || || || || 1 || 73 305

DE || 11 || 2 091 599 || 6 || 1 453 929 || || || 5 || 637 670

ES || 6 || 323 853 || 2 || 65 487 || || || 4 || 258 366,42

FI || 6 || 541 637 || 3 || 259 330 || || || ||

UK || 6 || 8 726 983 || 3 || 875 305 || || || 2 || 7 696 147

HU || 3 || 822 619 || || || 1 || 267 224 || 2 || 555 395

IT || 7 || 1 337 402 || 2 || 286 651 || || || 5 || 1 050 751

NL || 1 || 1 114 350 || || || || || 1 || 1 114 350

Total || 53 || 16 762 464 || 18 || 3 195 408 || 1 || 267 224 || 30 || 12 861 994

In addition, 294 cases which had been communicated
before 2010 to the Commission have been processed in 2010 with the
following results:

OR: TABLE 2

MS || Cases[25] || Total amount || Acceptance || Refusal || Additional information request

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

AT || 3 || 2 217 810 || 2 || 2 153 780 || 1 || 64 030 || ||

BE || 10 || 1 691 376 || 1 || 168 024 || 2 || 395 068 || 7 || 1 128 284

DE || 69 || 28 897 230 || 39 || 7 792 226 || 6 || 700 612 || 24 || 20 404 392

DK || 17 || 3 952 012 || 14 || 2 355 405 || 2 || 1 484 152 || 1 || 112 455

ES || 94 || 25 426 940 || 31 || 4 695 999 || 19 || 5 588 538 || 44 || 15 142 403

FI || 1 || 226 820 || || || || || 1 || 226 820

FR || 1 || 48 568 || 1 || 48 568 || || || ||

IT || 47 || 29 462 972 || 5 || 1 665 657 || 34 || 12 669 134 || 5 || 14 803 910

LV || 1 || 109 969 || || || || || 1 || 109 969

NL || 44 || 28 356 691 || 18 || 2 951 337 || 7 || 916 474 || 18 || 24 436 819

PT || 2 || 1 731 625 || || || 2 || 1 731 625 || ||

SE || 3 || 537 402 || 3 || 537 402 || || || ||

UK || 2 || 234 666 || 1 || 53 444 || || || 1 || 181 222

Total || 294 || 122 894 081 || 115 || 22 421 842 || 73 || 23 549 633 || 102 || 76 564 275

Examination of Member States’ diligence in
these cases constitutes a very effective mechanism for gauging their activity
in the field of recovery. It encourages national administrations to step up the
regularity, efficiency and effectiveness of their recovery activity, since any
lack of diligence leading to failure to recover, results in individual Member
States having to foot the bill.

6.1.3. 
Particular cases of Member State failure to
recover TOR

If TOR are not established because of an
administrative error by a Member State, the Commission applies the principle of
financial liability[26].
In 2010 Member States have been held financially liable
for over EUR 37 million and new cases are being given appropriate follow-up.

The main objective of these procedures is to
encourage individual Member States to improve their administrative performance
and to address weaknesses leading to a loss of TOR. Payments for these cases
are made available via the A-account and they reduce in effect the contribution
of the Member States via the GNI resource in proportion to their contribution
to the EU budget.

6.2. 
Reporting discipline

Under Article 6(5) of Regulation No 1150/2000,
Member States are required to communicate to the Commission, via the OWNRES
system[27],
cases of fraud and irregularity, if the TOR amount exceeds EUR 10 000. The
requirement to report such cases is designed to inform the Budgetary Authority
of the state of play relating to fraud and irregularities in TOR. This
political dimension is a clear signal to all stakeholders of the importance of
prompt, accurate and complete reporting. The OWNRES database is a key tool for obtaining
data for global analyses of fraud and irregularities, and presents valuable
information to the Budgetary Authority.

Because all TOR amounts exceeding EUR 10 000
in the B-account normally represent an irregularity (fraud included) by
definition, therefore the match between the two - from the standpoint of the
B-account - should be 100%[28].
This match is checked during the regular inspections in the Member States. New
analysis showed some unexplained discrepancies. The Commission will therefore
start an enquiry to the Member States to clarify the situation.

6.2.1. 
Year of discovery versus year reported

Cases should be included in OWNRES upon the
initial discovery of the irregularity or fraud case. As a result the year of
the customs operation and the year of discovery of the irregularity or fraud
can diverge. Member States are continually adding new cases and updating
existing items. So the information generated by OWNRES represents the situation
on the date of the query. For instance, the number of irregularities and frauds
concerning 2009 in last year’s report was 4 684 cases, whereas the number
of cases now shown for 2009 is 5 204 cases[29]. This continuing development
is inherent to the system.

6.3. 
General trends

The number of cases communicated to OWNRES
for 2010 is currently 9% lower in comparison with 2009 (from 5 204
to 4 744). The amount of TOR involved is however 10% bigger (from EUR 357
million to EUR 393 million)[30].

The number of communications from the ten
new Member States showed continued growth since their accession in 2004
until 2007. From 2007 to 2009 the communicated cases remained stable. 2010
shows 17% less communicated cases compared with 2009 although the amount of TOR
increased by 5% from 2009 to 2010.

The number of communications from Bulgaria and
Romania increased since their accession. In 2007 both countries together
reported 52 cases, whereas in 2010 both countries reported 151 cases.

The OWNRES database now contains 62 743 cases
in total (1989-2010) and shows an increase of 9% during 2010[31]. Significant changes in the number
of registrations in 2010 compared with 2009 can be seen for Romania (+71%), Bulgaria
(+ 47%), Malta (- 71%), Estonia (- 55%), Latvia (-37%) and Slovakia (-36%). Significant
changes of amounts can be seen in Spain (+169%), Denmark (+158%), Czech
Republic (+119%) and Malta (-72 %)[32].

From 2006 to 2009 the number of belatedly
discharged transit operations decreased continually. Compared to 2009 the
number of belatedly discharged transit operations increased.[33] In the case of transit,
practice shows that up to 90% of the initially established debts are ultimately
cancelled, because of proof of regular discharge after all.

6.3.1. 
Types of irregularity and fraud

A breakdown of frauds and irregularities by customs
procedure and by mechanism type confirms that most cases of
irregularity or fraud relate to the procedure of release for free
circulation (81% of established amounts[34]).
False declarations (false description, incorrect value, origin and preferential
arrangements) and formal shortcomings (failure to fulfil obligations or
commitments) are the mechanisms most frequently mentioned, but also smuggling
is highly placed.

The goods (defined by the first two numbers of
the CN code[35])
the most affected by fraud and irregularities in 2010, as in previous years,
are TVs/monitors etc. (CN 85). Furthermore, Machines (CN 84), Sugar (CN 17)[36] and Vegetables (CN 08)
increased in importance when compared to 2009. Organic chemicals (CN 29) and
Food (CN 16) decreased in importance and these goods were not listed anymore in
2010 in the TOP 10 Chapter Heading list.[37]

Chart OR1: Fraud and irregularities
breakdown by good in 2009 (in million EUR)[38]

Evaluation of the origin of goods
subject to fraud and irregularity[39]
reveals that, just as in 2009, goods originating from China and the USA remain
very much affected. The number of cases originating from Latin America in
particular from Ecuador, Brazil, and El Salvador has increased. Spain
communicated 4 cases of fraud involving EUR 28 million in relation to sugar
levies established linked to the framework of the common organisation of the
sugar market. Also goods originating from Ceuta were importantly involved in
the fraud and irregularities detected during 2010[40]. Japan has decreased in
importance as country of origin in comparison with the last year and goods from
South Korea have been more affected.

6.3.2. 
TOR and cigarettes

In 2010 there were 190 cases registered of seized
and confiscated cigarettes (CN code 24 02 20 90) involving estimated TOR of around
EUR 23.5 million. In 2009 the number of registered cases concerning seized and
confiscated goods was 217, totalling around EUR 26 million. The decrease of the
number of cases is related to the EU-15, of which the United Kingdom shows the
most significant decrease as regards the estimated amount of TOR in euro. As
regards the EU-12, the established amount of seized and confiscated cigarettes
increased significantly in Bulgaria and it decreased considerably in Romania.

6.3.3. 
Data main sectors TOR

See Annexes 3-10.

6.4. 
Detection of fraud and irregularity[41]

Of all the cases registered in OWNRES in 2010 19%
(883 out of 4 744 registered cases) are categorised as fraud, which is the
same proportion as in 2008 and 2009[42].
However, like in previous years, the differences between Member States are
relatively large. In 2010 most of the Member States categorised between 10-60%
of all cases as fraud. However, nine Member States categorised less than 10%[43] of the cases as fraud, whereas
four Member States registered more than 60%[44]
of the cases as fraud. These figures demonstrate that the categorisation of
irregularity and fraud in OWNRES may still not be fully reliable because of
differences in the interpretation of the definition of fraud and irregularities.

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

OWNRES is not a fully reliable source of data
on fraud alone, isolated from irregularity. This is because (until a court
judgment is obtained) the distinction between fraud and irregularity is usually
made on subjective grounds, and, these grounds vary between national
administrations.

6.4.1. 
Member States' control systems – Method of
detection expressed in cases

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

A range of detection methods can reveal
irregularity or fraud. Judging from the 2010 data national post-clearance
inspections and primary national inspections (either physical
inspections or inspections of documents — the latter category featuring most
frequently) are detection methods that have revealed most cases.
Post-clearance inspections feature in 44% of the cases discovered, whereas
primary national inspections cover 30%. All in all, the vast majority of cases
(74%) were detected in 2010 by means of either primary national inspections or
post-clearance control audits.

It is clear that the shift from primary to
post-clearance inspections, which could already be seen in previous years, continued
in 2010. The relative importance of inspections by anti-fraud services was relatively
stable with 8% in 2009 and 7% in 2010. Since the final results of such
inspections take more time than regular inspections, a (slight) increase in the
percentage for 2010 may be expected in future registrations.

CHART OR 2:
Method of detection 2008-2010

6.4.2. 
Member States' control systems – Method of
detection expressed in monetary terms

The map below illustrates by which methods
OWNRES cases - in amounts - have been discovered by the Member States[45] in 2010. For reasons of
presentation the following methods are included in the term "ex-post
controls": audit of the accounts, Union inspections, inspections by
anti-fraud services, inspection visits, national post-clearance audits and tax
audits. In EUR – 27 around 18% of all cases – in amounts – have been
discovered by primary inspections, whereas 78% of all cases – in amounts – have
been detected via "ex-post controls". In the following six Member
States more than 40 % of all cases – in amounts – have been detected by primary
inspections: Finland (50%), France (50%), Malta (64%), Poland (52%), Slovenia
(40%) and Bulgaria (69%). More than 90% of all cases – in amounts – have been
detected by "ex-post controls" in Austria (95%), Belgium (95%),
Denmark (92%), United Kingdom (95%), Cyprus (96%), Hungary (92%) and Slovakia
(100 %). In four Member States more than 10 % of all cases – in amounts- have
been detected by voluntary admission.[46]

MAP OR 1: Visualising the method of detection

6.4.3. 
Customs procedures affected to fraud and
irregularity in 2010

In 2010, the majority of established amounts in
OWNRES (81%) in EU-27 are related to the customs procedure "release for
free circulation".[47]
9% of all established amounts of OWNRES cases in 2010 involve the transit
procedures (3%), the customs warehousing (3%) and the inward processing (3%).
Between the Member States are however significant differences. In Bulgaria 64 %
of all established amounts of OWNRES cases relate to the transit procedure[48], whereas 36 % relate to the
release for free circulation. Furthermore, transit was much affected, in
amounts, in Slovenia (35%), Poland (25%) and Belgium (13%). In comparison to
the other Member States, the Netherlands detected during transit procedures
OWNRES cases with the highest total (EUR 2 950 732). Furthermore, Belgium (EUR 1
663 005) and Germany (EUR 1 303 854) are ranked high.

The amounts established of detected cases under
the customs warehousing were relatively high in the following Member States:
Belgium (19%), Finland (8%), Portugal (25%) and Sweden (12%). Germany
established in comparison to the other Member States most amounts (EUR 5 956 757)
related to the customs warehousing Belgium ranks second with an established sum
of EUR 2 450 644 detected under the customs warehousing. From the EU-12 only the
Czech Republic and Lithuania reported cases detected under the customs
warehousing. Italy reported mainly detection of cigarette smuggling under this
procedure. Austria, Greece and Ireland did not report any cases. Established
amounts of fraud and irregularities related to the inward processing were
mainly reported by the United Kingdom (20%), Sweden (11%), Lithuania (8%), and
Italy (7%). The United Kingdom was also top ranked as regards established
amounts (EUR 7 347 871) under the inward processing. From the EU-12 only Poland
and Lithuania reported cases detected under the inward processing. Austria,
Belgium, Ireland, the Netherlands and Portugal neither report cases of fraud
and irregularity in relation to this procedure.

Finally, 10% of all established amounts in
EU-27 fall under the category "Other". This category combines, among
others, the following procedures or treatments: Processing under customs
control, temporary admission, outward processing and standard exchange system,
exportation, free zone or free warehousing, re-exportation, destruction and
abandonment to the Exchequer.

MAP OR 2: visualising the customs procedures
affected to fraud and irregularity in 2010

6.4.4. 
Percentage of established or estimated amounts
in OWNRES to collected TOR

As indicated before over 97% of all amounts of
TOR established are recovered without any particular problem and made available
to the Commission via the A-account. For 2010 around EUR 20.9 billion TOR
(gross) have been collected by the Member States and thereafter made available
to the EU budget after deduction of 25% collection costs. These amounts relate
mainly to ‘normal’ import flows where goods are declared for a customs
procedure (e.g. release for free circulation) giving rise to a customs debt. In
comparison, according to the OWNRES communications, around EUR 418 million have
been established or estimated by the Member States in connection to detected
cases of fraud and irregularities where the amount at stake exceeds EUR 10 000.
Usually, this report refers to established amounts of TOR reported in
OWNRES with the exception of information about seized and confiscated
cigarettes (Annex 7). However in this paragraph, for the purpose of this
comparison, also estimated amounts in OWNRES have been taken into
account and added to the established amounts. This is to take also into
account the several cases of fraud and irregularities reported by Member States
where the unlawfully imported goods had been seized and confiscated by the
customs authorities and therefore, in accordance with the customs rules, no
customs duties for these goods had been established.

For EU-27 the established and estimated amounts
reported in OWNRES represent 2.00% of the collected TOR (gross).[49] A percentage of 2.00% reflects
that out of each EUR 100 of TOR (gross) collected an amount of irregularity or
fraud is registered in OWNRES of EUR 2.00. Within the Member States there are
differences. In 12 Member States the percentage is equal or above the average
of 2.00%. The highest percentage can be seen in Romania with 7.13%. In 9 Member
States the percentage is between 1.00 % (half the average) and the average of
2.00%. In 5 Member States the percentage is equal or below 1.00%. Luxembourg
did not report any OWNRES cases in 2010. For EU-15 the established and
estimated amounts reported in OWNRES represent 1.94% of the collected TOR,
whereas in EU-12 the established and estimated amounts reported in OWNRES
represent 2.93% of the collected TOR.

On the basis of the information in OWNRES it is
not possible to provide an explanation for the variations between the Member
States. It should also be noted that the figures can vary a lot from year to
year. Especially in Member States with a smaller share of TOR collection,
individual bigger fraud cases detected in a certain year may affect importantly
the annual percentage. Several factors influence this percentage, e.g. the type
of traffic and trade, the level of compliance of the economic operators, and,
the location of a Member State. Under these variable factors the percentage is
also affected on the way how the Member State's customs control strategy is set
up to target risky imports and to detect TOR related fraud and irregularity.

In recent years the Commission has in its TOR
inspections put a special emphasis on Member States' customs control strategies
and is monitoring closely Member States' action in relation to the observations
made during its inspections[50].

MAP OR 3: visualising the percentage of established
or estimated amounts in OWNRES to collected TOR

6.5. 
Recovery

· Member States have to recover all established amounts including
those they register in OWNRES. For a variety of reasons an established amount
may not be completely recovered, despite Member States’ efforts. The proportion
varies from Member State to Member State.

· Amounts established may change because of additional information or
judicial procedures when, for instance, revision shows that there was no
customs debt after all or the value or origin of the goods is different than
initially thought.

OWNRES shows that approximately 45% of the
initially established amount is corrected (cancelled). For closed cases related
to transit this may reach up to 90%. As a consequence, Belgium and the
Netherlands show more corrections than average, because establishments related
to transit occur more frequently. This is due to the ports of Antwerp and
Rotterdam.

6.5.1. 
Recovery rate

Differences in recovery results arise from factors
such as the type of fraud or irregularity or the type of debtor involved. The
recovery rate for all years (1989-2010) is 47%[51].

The overall recovery rate for 2009 recorded in
last year’s report was 44%, although it has since then climbed to 50%. At
present the recovery rate for 2010 is 46%[52].
In other words, of every EUR 10 000 of duties established in 2010 in
OWNRES, approximately EUR 4 600 is actually paid. Because recovery is
ongoing, the recovery rate is constantly changing (payments are obtained, new
establishments are made and corrections are taken into account).

There are big differences of the above short
term recovery rate within the Member States. The highest recovery rate was in
Sweden with 88%, whereas in Malta the recovery rate was zero %. In six Member
States was the recovery rate above 70 %.[53]
As explained before, Member States' recocery action is closely monitored by the
Commission and they are financially liable for the losses of TOR occurred
because of the weaknesses observed in their recovery action.

6.6. 
Conclusions

In its capacity as Authorising Officer, the
Commission (DG Budget is the delegated Authorising Officer) monitors the establishment and recovery of TOR by Member States in
various ways. The monitoring is carried out in partnership with different
Commission departments, including OLAF.

(1) 
Because of the particular interest the Budgetary
Authority has in recovery, reliable information regarding the number of cases
of irregularity and fraud and their development must be entered in OWNRES.
Member States have a special responsibility to ensure that appropriate
statistical information on irregularity and fraud is provided to the
Commission. Regarding the reliability of information in OWNRES, making a
distinction between irregularity and fraud or analysing fraud separately is
risky and the outcome is not very useful. Only court decisions make it certain
whether a case is one of irregularity or fraud, whereas within OWNRES this
distinction is usually based on a prognostication made by Member States’
administrations. The figures in OWNRES showing marked differences in the
proportions of cases denoted as frauds or irregularities between Member States
point this out clearly. OWNRES can only be used for global analysis and
monitoring.

(2) 
The goods involved in irregularities and frauds
demanding Member States’ attention are very diverse. TVs, machines and monitors
keep their relevance in 2010 and are like in previous years the most important
goods involved in registered cases of irregularity or fraud. Vegetables and
sugar gained significance. The origin of the goods concerned is likewise
varied, although some countries remain continuously at the top of the rankings
(such as China and the USA). Some Central and South American countries (e.g.
Brazil, Ecuador and Mexico) were of more importance in 2010.

(3) 
The established amounts of TOR at stake in
irregularity and fraud are, according to OWNRES, up to EUR 393 million in 2010.
Of the amounts initially established, approximately 44% is later cancelled and
in the case of establishments related to transit up to 90% of the established
amount may be cancelled later. Payment is then required only for the part which
is not cancelled. The initial recovery figures for 2010
are comparable to those of previous years.

(4) 
The methods of detection vary between Member
States, however, in 2010 post-clearance inspections and primary controls
(during the clearance) are creating 75 % of all OWNRES cases. Thereof, the
shift from primary to post-clearance inspections continued in 2010.

(5) 
The customs procedure release for free
circulation was like in the previous years the most affected to fraud and
irregularities. 81% of all amounts reported in OWNRES have been detected under
the release for free circulation. However, there are differences between the
Member States. In some Member States most cases have been detected during the
transit procedure, customs warehousing, inward processing, free zone or
destruction (of cigarettes).

(6) 
For EU-27 the established and estimated amounts
in OWNRES represent 2.00% of the collected TOR (before deduction of 25%
collection costs) for 2010. The percentage varies between the Member States and
between the years.

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

PART III - EXPENDITURE

7. 
AGRICULTURAL EXPENDITURE (Annexes 13-14)
7.1. 
Introduction

The Common Agricultural Policy (CAP) has been
one of the most important common policies over the years, as a large part[54] of the European Union's (EU)
budget is spent in the agricultural sector.

The agricultural expenditure is financed by 2
funds:

· 
EAGF

· 
EAFRD

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

The EU-budget for the year 2010 was about EUR
123 billion. More than EUR 53 billion was spent in the agricultural sector, of
which EAFRD expenditure accounts for about EUR 10.5 billion. Annex 13A provides
a detailed overview of the agricultural expenditure concerning the financial
years 2006-2010.

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

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

Commission Regulation (EC) No 1848/2006 obliges
Member States to report irregularities to OLAF. Member States report
irregularities via Module 1848.

Module 1848 was introduced in 2008 and was
directly used by all Member States. It is a web based application that can be
accessed via internet. Access via internet led to an enormous increase of the
number of users of Module 1848. The total number of users increased from less
than 50 in 2008 to more than 1,000 in 2010.

The data provided by Member States via Module
1848 is used for performing risk analysis as described in article 10 of Regulation
No 1848/2006[55]
and to inform the Advisory Committee for the Coordination of Fraud Prevention
(COCOLAF) as described in article 9 of Regulation No 1848/2006[56].

The agricultural section of this report contains
three parts: financial year 2010, financial years 2006-2010 and financial years
2004-2005. The first part contains an overview of new cases reported during
2010, Member States compliance with the reporting obligations and the recovery
of unduly paid amounts. In the second part are the trends and developments in
the agricultural sector described on basis of the data concerning the financial
years 2006-2010. The third part contains definitive figures, based on the
analysis of the financial years 2004-2005 which years, from an irregularity
reporting point of view, are considered to be finalised.

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

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

2.   Audit
plans and programmes are still running for the period 2006-2010. This means that
cases of irregularities still can be detected and reported, which could have a
direct impact on the figures. The figures concerning the financial years
2006-2010, therefore, need to be seen as a half-time-result[57].

3.   Not
all irregularities have to be reported. Member States must only inform OLAF of
irregularities involving more than EUR 10 000. It is also good to bear in mind
that 87% of the number of payments, representing 21% of the total expenditure, concern
amounts below EUR 10 000 which implies that for these payments normally no
irregularities will be reported[58].

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

7.2. 
Financial Year 2010
7.2.1. 
Financial Year 2010: cases reported

Table AG1 provides an overview per Member State
of the number of cases reported, the amounts affected and the classification of
the irregularities into "irregularity", "suspected fraud"
or "established fraud"[59].

Table AG1: cases reported during Financial Year 2010

Member States reported 1 825 new cases of
irregularities with a total amount affected of about EUR 131 million. These
cases concern expenditures for the financial years 1990-2010. Like last year,
Spain reported the highest number of cases (413) as Italy reported again the
highest amounts affected (EUR 39.7 million).

The number of cases that have been classified
as "suspected fraud" or "established fraud" is rather high:
414. This is 23% of the total number of cases reported and 47% of the total
amounts affected. The "fraud cases" are mainly reported by Italy and
young Member States, especially Bulgaria, Hungary, Poland and Slovenia.

France reported "no fraud" which is
remarkable now France spends approximately 20% of the total agricultural
budget.

Eye-catching are the high amounts affected by
irregularities reported by Hungary. The Hungarian authorities informed the
Commission that the high irregularity rate is caused by a special situation in
the Hungarian cereal market during the financial years 2006-2010[60].

Only five cases were not classified as
irregularity, suspected or established fraud. This is less than 1% and a big
step forward in comparison with previous years.

7.2.2. 
Financial Year 2010: reporting discipline

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

Table AG2 provides an overview of the
compliance rate per reporting obligation. Member States are ranked in order of
their overall 2010 compliance rate, which can be found in the fourth column of
the right hand side.

Table AG2: compliance per Member State

The compliance rate has been determined on
basis of the reporting obligations as stipulated in article 3, paragraph 1,
letters a - p of Reg. 1848/2006. The focus is on those obligations that are
crucial for strategic analysis and can be summarised with the typical questions
that are used in every (fraud) investigation: who, what, when, where, why and
how.

In 2010, the overall compliance rate[61] decreased from 95% to 90%. 15
Member States have a compliance rate above 90%. These Member States stabilized
their compliance rate during 2010 or even improved it. 11 Member States had a
downfall. Especially the downfall of the Dutch and Finnish compliance rate is
remarkable. The Netherlands went down from 87% to 68% as Finland went down from
70% to 59%. For both count that extra attention should be given to timely
reporting, the reporting of the measures affected and the sanctions imposed.
For Finland counts that also the reporting of personal data should get more
attention. Almost no information is provided concerning the persons that
committed the irregularities. Poland scores also low on the reporting of
personal data. The Polish compliance rate for the reporting of personal data is
only 26%.

Chart AG3: communications reported in 2010
by quarter

As mentioned, timely reporting is still a
problem for vast majority of Member States. Striking is that some Member States
submit at the beginning of the year a small number of communications while at
the end of the year a relatively high number is submitted. This could indicate
that communications are not submitted at the earliest possible moment but that
they are collected, processed and sent in one go at the end of the reporting
year with the consequence of late reporting. Chart AG3 provides an overview of
this end-year-rush. It gives an overview of the increase of the number of
communications sent during 2010. The total numbers at the bottom of the table
demonstrate best how the number of communications increases towards the end of
the year. 848 communications were sent during the first quarter of 2010. This
number increased during the second and third quarter to approximately 1 770.
During the last quarter, Member States submitted more than 2,700 communications
which is an increase of more than 220% in comparison to the number of
communications sent in the first quarter.

7.2.3. 
Financial Year 2010: financial follow up of
irregularity cases [62]

Article 32 of Council Regulation (EC) No
1290/2005 provides for an automatic clearance mechanism for unsuccessful
recoveries of unduly paid amounts. If a Member State fails to recover an unduly
paid amount from the beneficiary within four years of the primary
administrative or judicial finding (or, in the case of proceedings before
national courts, within eight years), 50% of the non-recovered amount is
charged to the budget of the Member State concerned within the framework of the
annual financial clearance of the EAGF and EAFRD accounts. Even after the
application of this mechanism, Member States are obliged to pursue their
recovery procedures and to credit 50% of the amounts effectively recovered to
the EU budget. If they fail to do so with the necessary diligence, the
Commission may decide to charge the entire outstanding amounts to the Member
State concerned. Moreover, since 2008, Member States are required to off-set
any outstanding debts against future payments to the debtor (compulsory
compensation).

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

In the year 2010, the 50/50 mechanism was
applied by the financial clearance decision for the financial year 2009[63] on all pending non-recovered
cases dating from 2005 or 2001 (cases that were four or eight years old
respectively). EUR 22.8 million was charged to the Member States in this way
and EUR 20.3 million was borne by the EU budget for reasons of irrecoverability
(out of the EUR 63.8 million declared irrecoverable by the Member States, EUR
43.5 EUR million had already been cleared under the 50/50 and, therefore, the
loss is shared between the EU and the Member States). A further EUR 11.9
million has been charged to the Member States by subsequent decisions that
cleared[64]
the accounts for financial year 2009 of those paying agencies that were
disjoined in April 2010.

During financial year 2010 Member States
recovered EUR 175.2 million and the outstanding amount still to be recovered
from the beneficiaries at the end of that financial year was EUR 1 193.3
million. Table AG4 provides an overview of the recovered, irrecoverable and
outstanding amounts at the level of beneficiaries at the end of financial year
2010.

Table AG4: financial information on recovery cases

The financial consequences of non recovery for
cases dating from 2006 or 2002 was determined in accordance with the 50/50 rule
mentioned above by charging EUR 27.8 million to the Member States concerned[65] and a further EUR 0.6 million
will be charged subsequently. Moreover, EUR 29.2 million was borne by the EU
budget for cases reported irrecoverable during financial year 2010.

Due the application of the 50/50 mechanism
since its introduction in 2006 important non-recovered sums have already been
charged to the Member States for EAGF expenditure (EUR 446 million).
Consequently, out of the EUR 1 193.3 million to be recovered from the
final beneficiaries at the end of financial year 2010 the amount outstanding
towards the EU budget is limited to EUR 888.8 million. As regards the recovery
of undue payments financed by the EAFRD, it has to be noted that the 50/50 rule
will only commence being applied after the closure of the rural development
programmes.

The new clearance mechanism (50/50 rule)
referred to above provides a strong incentive for Member States to recover
undue payments from the beneficiaries as quickly as possible. As a result, by
the end of financial year 2010, 42% of the new EAGF debts from 2007 and
thereafter had already been recovered, which is a significant improvement
compared to the past (see table AG5).

Table AG5: recoveries for cases detected since 2007

During the years 2008-2010 the Commission was
auditing the correct application of the new clearance mechanism through 15 on
the spot controls covering 16 paying agencies in 12 Member States covering 89%
of the total outstanding debt at the end of financial year 2010. In general,
the Member States' authorities have adequate procedures in place to protect the
financial interest of the European Union. Deficiencies found during these on
the spot controls are being followed up in the context of conformity clearance
procedures. The diligence of the Member States' authorities in the recovery of
the most significant irregularity cases is assessed in the context of further 9
conformity clearance procedures.

7.3. 
General trends

This paragraph provides an overview of trends
and developments concerning the financial years 2006-2010. The outcomes of the
descriptive analysis should be seen as a half-time-result.

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

7.3.1. 
Financial Years 2006-2010: impact on the budget

Table AG6 provides an overview of the total
expenditure for the financial years 2006–2010 and cases of irregularities and
fraud related to this expenditure.

Table AG6:expenditure, irregularity and fraud rates financial years
2006-2010[66]

Member States are ranked on basis of their
irregularity rate (IrR). The irregularity rate is the relation between
irregular amount and total expenditure[67].
The irregularity rate can be found in the fourth column of the right hand side.

The total expenditure in the period 2006-2010
was approximately EUR 249 billion. France had the highest expenditure. It spent
about EUR 49 billion which is almost 20% of the total agricultural budget.

Member States reported 3 644 cases with a total
amount affected of more than EUR 182 million, which implies an EU-27
irregularity rate of 0.07%. Spain reported with 728 cases the highest number of
irregularities, followed by Italy and France with respectively 355 and 345
cases.

Hungary reported the highest amount affected by
irregularities. Almost EUR 29 million was affected by irregularities which
concern the sector cereals[68].
As already indicated, these cases should be considered separately. Leaving
aside the Hungarian cases, this would mean that Spain and Italy have the
highest amounts affected by irregularities with about EUR 28 million, which is
in line with figures of previous years.

Hungary has the highest irregularity rate
(0.57%) now it reported the highest amounts affected by irregularities (EUR 29
million) and has a relatively low expenditure. Bulgaria has the second highest
irregularity rate: 0.52%. Luxembourg has the lowest IrR (0.01%), thus, can be
found at the bottom of the list.

Big spenders as France, Germany, United
Kingdom, Greece and Poland have an irregularity rate that is below the EU-27
average of 0.07%. The other two big spenders, Spain and Italy, have an
irregularity rate above the EU-27 average, respectively 0.09% and 0.10%.

The 3 Scandinavian countries (Denmark, Finland
and Sweden) have a comparable and low irregularity rate: 0.01%. The expenditure
in these 3 Member States is in amounts more or less comparable with the
Portuguese expenditure. The Portuguese irregularity rate differs however
strongly: 0.14%. Portugal reported 251 cases and a total amount affected of
about EUR 6.5 million as the 3 Scandinavian countries together reported 61
cases with a total amount affected of about EUR 1.5 million.

Remarkable is that the majority of the younger
Member States can be found on top of the table and that the majority of older
Member States can be found in the tail.

Remarkable is also that Member States with a
relatively low expenditure have a rather high irregularity rate. This could
indicate a higher audit rate, more tailor-made audit strategies and plans,
better functioning irregularity reporting system and so forth. A similar trend
can be seen within Member States. Provinces, regions or departments with a
relatively low expenditure have in general a higher irregularity rate than the
regions with a higher expenditure.

Chart AG7: expenditure and irregularity rate

Chart AG7 brings per Member State together the
expenditures and irregularity rates. The green lines concern the expenditures
as the red lines concern the irregularity rates.

Member States are ranked on basis of the total
expenditure. France, the Member State with the highest expenditure, can be
found on the left hand side while Malta, as the smallest spender, can be found
on the right hand side. The precise figures can be found in table AG6.

The thin red line indicates the irregularity
rate. The thick red line is a linear trend line which shows an increase of the
irregularity rate from left to right. Member States with a higher expenditure
have, in general, a lower irregularity rate than Member States with a lower
expenditure. In last years Art. 325 Report was already mentioned that this trend
can also be spotted in Member States. Regions that have a relatively low
expenditure report more cases than regions with a higher expenditure. Last
years' report contained examples for Austria, Spain and France.

It is however good to recall that the above
shown figures should be seen as half-time-result. Audits are still ongoing,
therefore, more irregularities will be reported which could turn the figures
completely.

7.3.2. 
Financial Years 2006-2010: cases classified as
suspected fraud

Table AG8 is an extract from table AG6 and
contains only the figures concerning suspected fraud. Member States are ranked
on basis of the fraud rate[69].
Bulgaria has the highest fraud rate, therefore, can be found on top of the
table.

Table AG8: fraud rates

Member States classified 611 cases (out of
3 644 cases) as "suspected fraud". The total financial impact of
these cases is about EUR 53 million which leads to an EU-27 fraud rate of
0.02%.

Eye-catching is that the vast majority of the
cases is reported by young Member States. Almost 80% (488 cases) of the
suspected fraud cases is reported by them. If also is taken into account that
Italy is responsible for another 12% of the cases (72 cases), then one can only
conclude that almost no fraud is reported by old Member States. The United
Kingdom, for instance, reported for a period of 5 years, with a total
expenditure of more than EUR 19 billion, 1 suspected fraud case with a total
amount affected of about EUR 14 140. Other big spenders that have an
extremely low fraud rate are Greece, Spain, Germany and France. Table AG9
provides a more simple and clear view on the number of suspected fraud cases
reported, the expenditure, the amount affected by the suspected fraud cases and
the fraud rate. Bear in mind that it concerns a period of 5 years: 2006-2010.

Table AG9: fraud cases big spenders

The number of fraud cases and the amounts
affected are so low that the fraud rate needs to be indicated in 6 digits
behind the dot. However, a level of 3, 4 or more digits behind the dot is not
desirable now it would give the false impression of a very high level of
precision. Presenting the fraud rates with only 1 digit would mean that the
fraud rates for all these Member States would be zero.

7.3.3. 
Financial Years 2006-2010: overview per budget
post

Table AG10 provides an overview per budget post
of the expenditures, irregularities and suspected frauds cases. The totals are
the same as in table AG6.

Table AG10: irregularity and fraud rates

The budget posts are ranked on basis of the
irregularity rate (IrR). The budget post with the highest irregularity rate can
be found on the top of the list, which is budget post B-050201 for cereals. The
high rates for cereals are mainly caused by Hungary. Hungary reported 104
cases, of which 67 cases were classified as suspected fraud and 1 case as
established fraud. It was already mentioned in paragraph 7.2.2. that the
Hungarian cases concern a special situation and should be considered separately
to avoid that these cases would distort the general picture.

The two budget posts with the highest
expenditures, e.g. decoupled direct aids (B-050301) and other direct aid
(B-050302), can be found at the tail of the list now they have an irregularity
rate of 0.02% and a fraud rate smaller than 0.01%. These two sectors together
cover more than 70% of the total expenditure which implies that these rates
have a high and decreasing impact on the overall rates.

Table AG11 provides a simple overview how often
a budget post occurred in an irregularity and what the financial impact was.
Only the budget posts with a relatively high number and/or amounts affected are
displayed.

Table AG11: irregularities per budget post

Clear is that a rather high number of cases (1 505)
is reported for expenditures concerning rural development measures in case the
3 budget posts for rural development are taken together (B-050401, B-050404 and
B-050405).

The following types of irregularities occurred
most frequently in the sector rural development:

Beneficiaries seem to have problems with
carrying out all necessary actions to fulfil the conditions under which the
support is granted. By not handing over documents or handing over of false or
falsified documents, beneficiaries try to cover the irregularity of not
carrying out of all necessary actions.

The number of cases and the amounts affected
for the sector decoupled direct aids (050301) is also high but that is not
surprising since more than 55% of the total agricultural expenditure concerns
decoupled direct aids. The types of irregularities that occur most frequently
for decoupled direct aids (050301) are:

Member States did not indicate the type of
irregularity or applied modus operandi for 81 cases.

For decoupled direct aids as well as rural
development counts that Member States classify the majority of "overdeclaration-cases"
as "suspected fraud". However, it should be noted that the fraud
rates for these sectors are low with respectively 0.01% and 0.06% (see table
AG10).

7.3.3.1. 
Financial Years 2006-2010: decoupled
direct aids (B-050301)

A sector that "consumed" more than
57% of the total agricultural budget for the financial years 2006-2010,
deserves some special attention. Table AG12 provides per Member State an
overview of the expenditure and the cases of irregularities and suspected
fraud.

Table AG12: decoupled direct aids – irregularity and fraud rates

Member States reported 1 140 cases of
irregularities with a total amount affected of almost EUR 29 million. The EU-27
irregularity rate is approximately 0.02%.

Spain reported the highest number and the
highest amounts: 268 cases and a total amount affected of more than EUR 6.1
million.

As already mentioned, the irregularity rate for
the sector decoupled direct aids is rather low. It differs however strongly per
Member State. A comparison between the top five spenders makes that clear.
France reported 1 case as Spain reported 268 cases. Remarkable is also that
only 2 of the 5 big spenders reported suspected fraud. A comparison between big
spenders and small spenders is also interesting. Take for instance France and
Bulgaria. The following table gives an interesting overview.

7.4. 
Specific analysis

Last year's Commission Staff Working Paper
“Statistical Evaluation of Irregularities” introduced key-figures as
Irregularity Rate (IrR), Fraud Rate (FrR), Fraud Amount Level and Fraud
Frequence Level (FFL)[70].

To present reliable rates and levels, a time
frame should be used that can be considered, from an irregularity reporting
point of view, as "finalised". The financial year 2010 cannot yet be
used to calculate rates and levels as a large number of irregularities
concerning the financial year 2010 will be reported in the coming years. The
same counts for the period 2006-2010.

The financial years 2004-2005 can be considered
as finalised[71].
Member States had set up audit strategies and audit plans and performed audits
on basis of these strategies and plans. Audit findings have become definitive
and irregularities have been reported. The course of the number of cases of
irregularities reported concerning the expenditures of the financial years
2004-2005 enforces the assumption that all or almost all cases have been
reported for the financial years 2004-2005. Chart AG13[72] demonstrates the course of the
reported cases for the expenditure of the financial years 2004-2005.

Chart AG13: course of irregularities – FY2004-2005

The green line indicates the real course of the
number of cases reported. Timely reporting is still a problem for a rather
large number of Member States, this counts especially for the past such as the
financial years 2004-2005. The orange line indicates the course in case all
cases were reported timely. Both lines show a clear peak in the number of cases
reported for the year 2005 and then a decrease for the period 2006-2007. The
rather strong downfall for 2007 can be explained by the introduction of a new
threshold under which no irregularities have to be reported. Reg. 1848/2006
introduced a new threshold of EUR 10,000. The old threshold was EUR 4 000. A
revival can be spotted for the years 2008-2009. This revival can be explained
by the coming operational of Module 1848. The new reporting module made it far
more easier to process communications by a far larger number of users which led
to an increase of the number of cases reported. From 2008 onwards, a decrease
can be seen from 11% via 8% to 3%. It can be expected that the number of cases
will decrease to zero or almost zero in 2011. The thin orange line is a linear
trend line and indicates the downfall to zero. In other words, it can be
assumed that almost all cases of irregularities have been reported for the
financial years 2004-2005.

7.4.1. 
Financial Years 2004-2005: expenditures and
cases reported per Member State

Table AG15 provides per Member State an
overview of the expenditures, cases of irregularities and amounts affected by
irregularities. The Member State with the highest expenditure has been put on
top of the table.

Table AG15: irregularity and fraud rates

The total expenditure for the financial years
2004-2005 was almost EUR 91 billion. France was the Member State with the
highest expenditure. France spent about EUR 19.6 billion which was almost 22%
of the total agricultural expenditure (EU-25).

Member States reported 4 402 cases of
irregularities. The total amount affected by these irregularities is almost EUR
214 million, which implies an irregularity rate of 0.24% (IrR).

Member States classified 349 cases out of 4 402
as suspected fraud. The total amount affected by these suspected fraud cases is
almost EUR 65 million. The fraud rate is 0.07% (FrR).

Striking are the sometimes huge differences
between Member States. Spain and Germany, for instance, have in amounts a
comparable expenditure, EUR 12.9 billion and EUR 12.1 billion respectively.
Spain reported 942 cases as Germany reported 399. A same difference can be seen
for the amounts affected. Spain reported a total amount affected by
irregularities of about EUR 43.7 million as Germany reported EUR 7.3 million.

A similar comparison can be made between
Finland and Portugal. Both spent approximately 1.9% of the total agricultural
budget. Portugal reported 439 cases with a total amount affected of almost EUR
7.8 million as Finland reported 23 cases with a total amount affected of about
EUR 0.3 million. As stated, the differences are huge. One could argue that
Portugal and Finland have different types of expenditures due to, for instance,
their natural location. However, a huge difference can also be spotted between
Finland and Sweden. Sweden spent approximately 2.0% of the budget and reported
119 cases with a total amount affected of about EUR 1.3 million. Table AG16
provides an overview of these 3 Member States.

Table AG16: detailed overview of Sweden, Finland and Portugal

Eye-catching are also the figures of the top
three (France, Spain and Germany) especially where it concerns the number of
suspected fraud cases and fraud rates. These three Member States are together
responsible for almost 50% of the total agricultural expenditure. The number of
suspected fraud cases and the amounts affected by these cases are remarkably
low.

Table AG17: fraud rates top 3 spenders (France,
Spain and Germany)

France had an expenditure of almost EUR 20
billion and reported 6 cases of suspected fraud with a total amount affected of
EUR 1.2 million. This means a fraud rate of 0.0063% which is almost zero. The
same can be seen for Germany. The total German expenditure was a bit more than
EUR 12 billion. Germany reported 2 cases of suspected fraud with a total amount
affected of EUR 57,725 which leads to a fraud rate of 0.0005% which is also
almost zero. Spain had an expenditure of almost EUR 13 billion and reported 8
cases of suspected fraud. The amounts affected by these suspected fraud cases
were almost EUR 1.1 million which implies a fraud rate of 0.0084% which is
again almost zero.

In addition has to be mentioned that the French
and German suspected fraud cases were reported for only one sector: B-050401
rural development. As already mentioned, a level of detail of 3, 4 or more
digits behind the dot is not desirable. It gives the false impression of a very
high level of precision. The rates should be indicated with only 1 digit behind
the dot. This would means that the fraud rates for these Member States are
zero. A fraud rate of zero means that none of the irregularities was committed
intentionally or deliberately.

Some other eye-catching facts in bullet points:

· 
Spain reported the highest number of cases: 942
cases;

· 
Italy reported the highest amounts affected by
irregularities: EUR 86 million;

· 
Italy reported the highest number of suspected
fraud cases: 164 cases;

· 
Slovenia has the highest irregularity rate:
2.92%;

· 
Estonia has the highest fraud rate: 0.96%;

· 
no suspicion of fraud in 10 Member States;

· 
5 Member States have a fraud rate of 0.1% or
higher;

· 
EU-25 irregularity rate (IrR) = 0.24%;

· 
EU-25 fraud rate (FrR) = 0.07%.

7.4.2. 
Financial Years 2004-2005: expenditures and
cases reported per budget post

Table AG18 provides per budget post an overview
of the expenditures, irregularities and suspected frauds. The budget posts are
ranked on basis of the expenditure. The budget post with the highest
expenditure can be found on the top of the list. It concerns budget post
B-050203 direct payments for arable crops.

Table AG18: irregularity and fraud rates

The budget posts with a rather low amount and
no irregularities have been left out to avoid that the table would become less
readable. These budget posts are summarized by "other". The column
budget post contains also the term blank. As indicated by the description, it
concerns 21 cases of irregularities for which Member States did not indicate
the budget post affected by the irregularity. These cases were reported by
Cyprus (1x), Germany (11x), Greece (1x), Italy (1x), Slovakia (2x) and the
United Kingdom (5x). The Italian case was classified as suspected fraud.

The total expenditure for post B-050203 was
more than EUR 34 billion, which is about 38% of the total expenditure. Member
States reported in 454 cases that the irregularity concerned post B-050203. In
37 cases, the irregularity was classified as suspected fraud. The irregularity
rate and fraud rate are 0.05% and 0.03% respectively.

Sectors with a rather high irregularity and/or
fraud rate are:

Especially sector B-050208 has a rather high
irregularity and fraud rate. The next paragraph will have the focus on this
sector. After that, the focus will be on the top five budget posts. The total
expenditure for these five budget posts covers more than 75% of the budget
while the total expenditure per post is more than EUR 4 billion. It concerns:

Starting point will be a table in which
elements as expenditure, irregular amount, irregularity rate, cases of
irregularity, fraudulent amount, fraud rate, cases of suspected fraud and years
in which the cases of irregularities were reported can be found.

Per budget post will be indicated if the
reporting of irregularities can be considered as finalised in order to use the
different rates as definitive figures. This indication will be on basis of the
course of the number of reported cases taking also into account the non-timely
reporting by some Member States. This course will be visualised by a chart that
is indicating the course of the cases over the years on basis of the reporting
by Member States (green line) and the course in case Member States would have
reported timely (orange line). These charts can be found in annex 15 except the
chart for the sector B050208 fruits and vegetables. That chart is directly
discussed in paragraph 7.4.2. in order to explain that chart more in depth.

All charts will show a strong decrease of the
number of cases in 2007 and an increase in 2008. This phenomenon can be explained
by:

· 
Reg. 1848/2006 introduced in 2007 a higher
threshold under which no cases of irregularities have to be reported. The
threshold increased from EUR 4 000 to EUR 10 000;

· 
Module 1848 became operational in 2008. Module
1848 is a web based application with a cascaded reporting structure which led
to an increase of the number of users of the irregularity reporting system from
less than 50 to more than 1 000 in the period 2008-2010.

In last years Art. 325 report, values as IFL
(Irregularity Frequency Level), FAL (Fraud Amount Level) and FFL (Fraud
Frequency Level) were introduced. These values will not be displayed now the
added value will be rather low: only Italy and every now and then one or two
other Member States reported suspected fraud cases.

7.4.2.1. 
Financial Years 2004-2005: fruits and vegetables
(B-050208)

The total expenditure for budget post B-050208
was about EUR 3.3 billion. Member States reported 297 cases of irregularities
with a total amount affected of about EUR 69 million. 4 Member States classified
26 cases as suspected fraud.

Table AG19:irregularity and fraud rates

The right hand part of the table "cases of
irregularities reported in year" provides an overview of the years in
which the irregularities have been reported.

Chart AG20: course of cases

Table AG19 has been visualised in chart AG20.
The chart contains two lines. The green line is based on the figures indicated
in the right hand side part of table AG19 and reflects reality. The orange line
indicates the number of cases per year in case Spain and Italy would have
reported their cases timely.The green line shows a peak for 2009. That peak is
caused by Spain that reported 89 cases in 2009. 50 of these cases concern
FY2004 as 39 cases concern FY2005. The information that led to the discovery of
the irregularity was in most cases already available in 2007, therefore, these
cases should have been reported in 2007 or 2008. In other words, late reporting
caused a peak in 2009 and a trough in 2007 and 2008. Spain reported 1 case in
2010 which should also have been reported in 2007 or 2008. In other words, if
Spain would have reported all cases timely, a more normal course of the line
would have been the result with a peak in 2007 (see orange line). The same can
be said for the 15 Italian cases that were reported in 2010. Almost all these
irregularities started and ended in 2004. Only one case started in 2005 and
ended in 2007. Based on the PACA[73],
most of these cases should have been reported in 2005 and 2008. Italy
classified all these cases as "suspected fraud" and started penal
procedures. The latter explains most likely the late reporting: waiting for a
Court (re)action. The chart supports the assumption that the financial years
2004-2005 can be considered as finalised. The orange line makes clear that a
timely reporting by Spain and Italy would have meant that the financial years
2004-2005 could have been considered as "finalised" at the end of
2009.

Spain reported the highest number of cases of
irregularities: 172. Unfortunately, it described the applied modus operandi in
the vast majority of the cases vaguely or in very general terms. For the 89
cases reported in 2009 counts that in 91% of the cases the modus operandi was
described as "incumplimiento Art. 15 R(CE) 2111/2003". This implies
that the producer organisations did not sent the competent authorities the
information as requested by art. 15 Reg. 2111/2003. Spain did not provide any
further information which makes it rather difficult to determine what exactly
went wrong in these cases.

45 Spanish provinces benefitted from the
support measures of budget post B-050208. Irregularities were detected in 18
provinces. Table AG21 provides an overview per province of the expenditure, the
irregular amount and the irregularity rate (IrR). Only provinces with an
expenditure of EUR 1 million and more are displayed. Provinces are ranked on
basis of the expenditure. Province Santa Cruz de Tenerife had with almost EUR
155 million the highest expenditure and can be found on top of the table.

The irregularity rates vary enormously.
Allicante had the highest with 11.34% followed by Navarra (5.64%) and Castellon
(5.15%).

Eye-catching is that not in all provinces with
a high expenditure irregularities occurred. No cases have been reported for
provinces as Badajoz and Las Palmas which had an expenditure of EUR 92 million
and EUR 43 million respectively.

Table AG21: Spain – irregularity and fraud rates by province

Member States classified 26 cases as suspected
fraud, of which Italy was responsible for the vast majority of these cases: 23.
Cyprus, Greece and Portugal classified each one case as suspected fraud. For
all other Member States counts that none of the cases was classified as
suspected fraud. In other words, none of the other cases was committed
intentionally. These figures make once again clear that it is not wise to speak
about an EU-25 fraud rate. The fraud rate needs to be determined at Member
States' level or at an even lower level as for instance regions or provinces.

Italy had expenditures in 92 out of 109
provinces. Irregularities were discovered in 11 provinces. The 23 cases of
suspected fraud were discovered in 6 provinces of which 16 in the province
Reggio di Calabria. The other suspected fraud cases were discovered in Palermo
(3), Messina (1), Cantazaro (1), Crotone (1) and Milano (1).

Above was already mentioned that the Spanish
irregularity rates differ rather strongly per province. The same can be said
for Italy. The irregularity and fraud rates differ also here rather strongly
per province. Table AG22 provides an overview. Only provinces with expenditures
above EUR 5.5 million are displayed. The table makes once again clear that it
is better to speak about rates of the different provinces than about a national
rate now the rates differ rather strongly per province.

Table AG22: Italy – irregularity and fraud rate by province

Remarkable is that also here no irregularities
have been reported for provinces with rather high expenditures such as Parma,
Bologna and Salerno.

7.4.2.2. 
Financial Years 2004-2005: direct payment for
arable crops (B-050203)

The total expenditure for the sector B-050203
is about EUR 34.1 billion, which is about 38% of the total expenditure for the
financial years 2004-2005. The EU-25 irregularity rate is 0.05% (IrR) as the
fraud rate is 0.03% (FrR). Table AG23 provides an overview.

Table AG23: irregularity and fraud rates

The financial years 2004-2005 can be considered
as finalised now 90% of the irregularities were reported before 2007. A large
number of Member States reported only a limited number of cases after 2006.
Only Italy reported 24 new cases in 2010 but for all these cases count that the
PACA[74]
was in 2006. If these cases would have been reported timely, they would all
have been reported in 2006. Chart AG24 (see annex 14) visualises that the
number of new cases is neglectable from 2007 onwards. In other words, the
financial years 2004-2005 can be considered as finalised.

France is the Member State with the highest
expenditure. It spent about EUR 10.3 billion which is more than 30% of the
total expenditure for this sector. The number of payments was about 2.2
million. France reported 129 cases of irregularities (IFL<0.01%) which were
all reported in the period 2005-2006. No new cases were reported after 2006.

Germany had the second highest expenditure. It
spent about EUR 7.1 billion which is more than 20% of the total expenditure for
this sector. Germany reported 50 cases of irregularities in the period
2004-2006. The total number of payments was more than 1.3 million
(IFL<0.01%).

France and Germany were together responsible
for more than 50% of the total expenditure for this budget post. For both Member
States counts, that none of the cases was classified as suspected fraud.

Remarkable is that Lithuania reported 20 cases
of irregularities with a total amount affected of EUR 224 395. Remarkable
now Lithuania had no expenditure for this sector concerning financial years
2004-2005: Lithuania indicated a wrong year in Module 1848. Such mistakes occur
more often and are not only made by Lithuania but also by other Member States.

Mistakes as mentioned above make the figures
less reliable and imply that the figures need to be read with the necessary
caution.

Important to know is the answer on the question
how the irregularities were committed. What was the applied modus operandi?
France is the Member State with the highest expenditure (EUR 10.3 billion) and
reported the highest number of cases (129), therefore, a closer look at the
French cases could serve the interest of all Member States. Unfortunately,
France did not provide any information on the modus operandi applied. It only
indicated the type of irregularity by selecting a code of the drop down list.
France selected in more than half of the cases the code 1500: over- or
underproduction. It also did not indicate if it concerned overproduction or
underproduction. For almost all other cases selected France the code 1610:
other actions not carried out in accordance with Regulation. Also for these
cases count that no further explanation was given. Not providing any
information on the applied modus operandi makes the reporting of the
irregularity almost redundant. The data cannot be used for any in depth
analysis. The data can only be used for basic statistics as for instance the
most frequently occurring types of irregularity as displayed in the table on
the right hand side. Table AG25 concerns all 454 cases and not only the French
cases.

Table AG25: most frequently occuring MO

Table AG23 indicates per Member State irregularity
and fraud rates. As already mentioned above, these rates need to be interpreted
cautiously. France for instance had expenditures in all 96 metropolitan
departments. France detected in 54 departments 129 cases of irregularities
which implies that no irregularities were detected in 42 departments. The
number of cases per department is also rather low. 29 Departmens reported 1
case and 11 departments reported 2 cases which makes again clear that only a
limited number of departments reported a substantial number of cases. Only 2
departments reported more than 10 cases: Nord and Hérault reported both 12
cases.

In general can be said, that the departments with a relatively low expenditure
have a relatively high irregularity rate. Take for instance the departments
Hérault and Eure et Loir. Hérault, with a total expenditure of about EUR 19.5
million, reported the highest number (12) and highest amount affected (EUR
135 000) while Eure et Loir, with an expenditure of almost EUR 330
million, reported 1 case with a total amount affected of about EUR 10 000.

Table AG26: irregularity and fraud rates by
department

Table AG26 provides per department an overview
of the expenditure, irregular amount, irregularity rate, fraud rate and number
of cases. The departments are ranked on basis of the expenditure. The
déparement Eure et Loir had with almost EUR 330 million the highest expenditure
and can be found on top of the table. Only departments with an expenditure
above EUR 150 million and the departments Gironde and Hérault are displayed in
the table. All other departments are summarised under "other". The
departments with a higher irregularity rate can be found in the south of
France.

Map AG27: irregularity rates by department

The map is based on the irregularity rate (IrR)
from Table AG26. The higher the irregularity rate, the darker the colour.
Departments in which no irregularities were detected are coloured grey/beige.
The names of these departments are also not displayed. It concerns 42
departments (44%).

The overall number of (suspected) fraud cases
for the sector B-05023 direct payments for arable crops is low. Only 2 Member
States reported such cases: Greece and Italy. No suspected fraud occurred in
all other 23 Member States. On a total expenditure of more than EUR 34 billion,
only 37 cases of irregularities were committed intentionally in 2 Member
States. The modus operandi of these cases can be summarised with the keywords
"overdeclaration" and "falsified documents". By handing over
falsified documents, beneficiaries made it look as if they had more land.

7.4.2.3. 
Financial Years 2004-2005: beef and veal
(B-050302)

The total expenditure for sector B-050302 was
almost EUR 16 billion. Member States reported 402 cases of irregularities with
a total amount affected of about EUR 23.2 million, which implies an
irregularity rate of 0.15% as detailed in Table AG28.

Table AG28: irregularity and fraud rates

The financial years 2004-2005 can be considered
as finalised. For most Member States counts, that there is a strong downfall of
cases after 2006. Only Italy reported a rather high number in the period
2008-2010. Some of the 2009 and 2010 cases should, on basis of the PACA,
already have been reported in 2007. The vast majority concerns "suspected
fraud cases" and the impression is that Italy waited with reporting till
there was a Court (re-)action. Chart AG29 (see annex 14) visualises the
downfall of the number of reported cases over the years.

France had with almost EUR 3.7 billion the
highest expenditure. It reported in 5 consecutive years 5 cases of
irregularities with at total amount affected of almost EUR 80 000.

Germany had also here the second highest
expenditure. It spent almost EUR 2 billion and reported 62 cases with a total
amount affected of almost EUR 475 000. Germany reported its cases in the period
2003-2006. The German irregularity rate is 0.02%.

Member States with a rather high irregularity
rate are Italy, Poland and Spain with respectively 1.00%, 0.55% and 0.40%.

The Slovenian irregularity rate is extremely
high (22%) but it should be taken into account that the total Slovenian
expenditure is relatively low which implies that one case with a rather high
financial impact immediately leads to a high irregularity rate. In other words,
this rate needs to be put in perspective.

Member States reported 29 cases of suspected
fraud. Almost all cases were reported by Italy. Spain completed the list of
suspected fraud cases by reporting 1 case. This makes once again clear that it
is difficult to talk about an EU-25 fraud rate. Only 2 Member States reported
suspected fraud cases, therefore, the fraud rate needs to be determined on
Member States' level or, even better, lower level such as regions or provinces.

Italy consists out of 109 provinces.
Expenditure took place in all provinces. Irregularities were reported for 17
provinces. Remarkable is that no cases have been reported for provinces with a
rather high expenditure such as Modena, Brescia, Torino and Mantua. The 28
Italian suspected fraud cases were discovered in 6 Italian provinces. 14 cases were discovered in Treviso, 9 in Reggio di Calabria, 2 in
Padova and 1 in the provinces Enna, Genova and Potenza. The modus operandi can be summarised with submitting a request for
aid by handing over false or falsified documents in which fictitious products
are declared.

Map AG30: Italy – cases of irregularities and
suspected fraud

Map AG30 provides an overview for which
provinces cases of irregularities and suspected fraud were reported. The left
map indicates the cases of irregularities as the right map indicates the
suspected fraud cases. The maps are based on the irregularity and fraud rates
displayed in Table AG31.

As already mentioned above, expenditure took
place in all provinces. Both maps show that only for a limited number of
provinces cases were reported. The maps show also clearly that irregularity and
fraud rates differ strongly per province.

Table AG31 provides a more detailed overview of
the irregularity and fraud rates per province. Only the provinces with a total
expenditure above EUR 15 million are displayed.

Table AG31: Italy - irregularities and fraud rates
by province

7.4.2.4. 
Financial Years 2004-2005: rural development
(B-0504xx)

Table AG32 combines budget posts B-050401 and
B-050404. Both concern rural development but B-050401 was meant for EU-15 as
B-050404 was meant for new Member States. Combining these two budget posts
makes it possible to provide one overview for the sector rural development. The
description B-0504xx is used to indicate that it concerns the combination
B-050401 and B-050404.

Table AG32: irregularity and fraud rate

The total expenditure for rural development was
almost EUR 10.8 billion. This sector has with 1 942 irregularities the highest
number of reported cases. Member States as France, Portugal, Italy and Germany
reported a relatively high number of cases for this sector. The total amount
affected is about EUR 53 million, which implies an irregularity rate of 0.49%.

Chart AG33 (see annex 14) visualises the right
hand side part of the table. The green line reflects the course of the number
of cases reported per year. The orange line reflects the situation in case
Member States would have reported all cases timely. The course of the two lines
is more or less the same. The orange line is only quicker at its peaks and
troughs than the green line. If Member States would have reported all cases
timely, the number of cases reported in 2010 would be 92 and not 180. This
explains also why the orange line bends in 2010 stronger down than the green
line. It can be expected that still some cases will be reported during 2011. It
will not be that many now the almost traditional final sprint of some Member
States already can be spotted in the table. The vast majority of the Italian
2010-cases concern suspected fraud cases of which already has been concluded
that Italy report such cases at the end of the cycle.

The biggest amounts were spent in France: EUR
1.7 billion. France reported 495 cases with a total amount affected of about
EUR 7.8 million which implies an irregularity rate of 0.46%. The course of the
French cases is almost by the book: the highest number of cases reported in the
years of expenditure and a gradually decreasing number of cases in the years
afterwards. The French irregularity rate is just below the EU-25 of 0.49%.

Germany had the second highest expenditure: EUR
1.6 billon. The German expenditure is in amounts comparable with the French
expenditure. That cannot be said about the number of cases reported and the
amounts affected. Germany reported 161 cases with a total amount affected of
about EUR 2.8 million which is far smaller than the French figures. France
reported 495 cases with a total amount affected of about €7.8 million. The
German irregularity rate is 0.17% whereas the French irregularity rate is 0.46%.

Portugal reported the highest number of cases:
270. That is rather remarkable considering the fact that the Portuguese
expenditure is relatively small in comparison with the expenditures of for
instance France and Germany. The Portuguese expenditure was EUR 372 million for
which 270 cases of irregularities were reported with a total amount affected of
about EUR 4.1 million. The irregularity rate for Portugal is 1.11%.

Italy reported the highest amounts affected by
irregularities: EUR 11.6 million. It concerns 220 cases of which 62 cases were
classified as suspected fraud with a total amount affected of EUR 5.9 million.
The Italian irregularity and fraud rate are 0.88% and 0.45% respectively.

The Netherlands and Slovakia have both an
irregularity rate above 3% which is far above the EU-25 average of 0.49%. The
Dutch expenditure was about EUR 137 million as the Slovakian expenditure was
about EUR 94 million. Both reported 43 cases with a total amount affected of
EUR 4.3 million and EUR 3.6 million respectively.

8 Member States reported together 207 suspected
fraud cases. This is remarkable. The general picture is that Italy reports the
vast majority of suspected fraud cases and that one, two or three other Member
States complete that by submitting one or two suspected fraud cases. That is
different for the sector rural development: 8 Member States reported suspected
fraud cases and Poland reported the highest number.

Poland reported 132 cases with a total amount
affected of EUR 2.7 million on an expenditure of EUR 524.5 million. The Polish
fraud rate is 0.52%.

Although 8 Member States reported suspected
fraud cases, it is still not wise to talk about an EU-25 fraud rate.

7.4.2.5. 
Financial Years 2004-2005: milk and milk
products (B-050301)

The total expenditure for this sector is about
EUR 5.6 billion. Member States reported 234 cases of irregularities with a
total amount affected of almost EUR 6.6 million. 4 Member States classified 8
cases as suspected fraud. The fraudulent amount is about EUR 700 000 as
detailed in Table AG34.

Table AG34: irregularity and fraud rate

The financial years 2004-2005 can be considered
as finalised. Table AG34 and Chart AG35 (see annex 14) make clear that the
reporting peak was in 2006 and that from 2006 onwards the number of new cases
decreased to almost zero in 2010.

France was again the Member State with the
highest expenditure. It spent EUR 1.1 billion and reported 33 cases with a
total amount affected of about EUR 1.4 million. The irregularity rate is 0.12%.
None of the French cases was classified as suspected fraud.

Germany reported the highest number of cases
and the highest amounts affected by irregularities: 70 cases and a total amount
affected of about EUR 1.5 million. The German expenditure was EUR 0.6 billion.
The German irregularity rate is 0.26%.

7.4.2.6. 
Financial Years 2004-2005: olive oil (B-050206)

The sector B-050206 is the sector with the
fifth highest expenditure: EUR 4.7 billion. This is already a relatively small
amount considering the fact that the total expenditure was almost EUR 91
billion. Also important to know is that only 7 Member States had expenditures
for this budget post as detailed in table AG36.

Table AG36: irregularity and fraud rate

The Member States with the highest expenditures
were Spain, Italy and Greece with EUR 2,0 billion, EUR 1,5 billion and EUR 1,0
billion respectively. It were also only these 3 Member States that reported
irregularities. The financial years 2004-2005 can be considered as finalised.
Table AG36 as well as chart AG37 (see annex 14) make clear that the reporting
of cases had a peak in 2005, a strong downfall in 2006, again a peak in 2008
and then a gradual downfall to almost zero in 2010. The reasons for this wave
have already been mentioned: the introduction of a higher threshold, the
introduction of Module 1848 and the late reporting of 3 Italian suspected fraud
cases.

The most frequently occurring modus operandi
can be summarized with incorrect reporting of produced quantities which was
done by mistake or intentionally by handing over falsified documents.

Remarkable is that Spain used in 27 cases words
as "daclaraciones falsas", "falsificación" and
"fals" to describe the modus operandi. None of these cases was
classified as suspected fraud although these descriptions give the impression
that the irregularities were committed intentionally.

7.5. 
Conclusions

(1) 
A higher number of cases of irregularities
reported does not necessarily mean that more irregularities are committed or
that a Member State is more vulnerable for irregularities. A more developed
audit strategy, tailor made audits, higher number of performed audits will
normally lead to a higher number of detected irregularities. Therefore, it is
possible that Member States with a higher irregularity rate perform better,
either in substance or in their reporting, than Member States with a lower
irregularity rate.

(2) 
The number of cases of irregularities and the
amounts affected are not equally spread over and within Member States.

7.5.1. 
Financial Year 2010

(3) 
The EU-27-compliance-rate-2010 decreased from
95% to 90%. Member States that should pay extra attention to issues as timely
reporting, personal data and measures affected are Finland, the Netherlands and
Poland. Slovakia has the highest compliance rate as Finland has the lowest.

(4) 
During financial year 2010, Member States
reported 1 825 new cases with a total amount affected of about EUR 131 million.
These cases concern expenditures for the financial years 1990-2010. Spain
reported the highest number of cases (413) as Italy reported the highest
amounts affected (EUR 40 million). 18 cases had a total amount affected of more
than EUR 1 million.

(5) 
Member States classified 414 out of 1 825 cases
as suspected fraud or established fraud, which is 23% of the total number of reported
cases and 47% of the total amounts affected. These cases are mainly reported by
Italy and young Member States as Bulgaria, Hungary, Poland and Slovenia. France
did not classify any of its 119 cases as suspected fraud.

(6) 
Member States recovered during the financial
year 2010 about EUR 175 million and declared irrecoverable about EUR 51
million. The overall outstanding amount at the end of Financial Year 2010 is
about EUR 1.2 billion.

(7) 
The new clearance mechanism (50/50 rule)
provides a strong incentive for Member States to recover undue payments from
the beneficiaries as quickly as possible. As a result, by the end of financial
year 2010, 42% of the new EAGF debts from 2007 and thereafter had already been
recovered, which is a significant improvement compared to the past.

7.5.2. 
Financial Years 2006-2010

(8) 
The figures concerning the financial years
2006-2010 can be used to identify trends. These figures should be considered as
half-time-result now still cases of irregularities will be reported. Definitive
figures can only be determined of financial years that can be considered, from
an irregularity reporting point of view, as "finalised".

(9) 
The total expenditure for the financial years
2006-2010 was about EUR 249 billion. The highest expenditure was made by France
(20%) and the lowest by Malta (< 0.1%). Member States reported for these
financial years 3 644 cases with a total amount affected of about EUR 182
million which means a provisional irregularity rate of 0.07%. The highest
number of cases was reported by Spain (728) as the highest amounts affected by
irregularities were reported by Hungary (EUR 29 million).

(10) 
57% of the total 2006-2010 expenditure concerns
the sector "decoupled direct aids". Member States reported for this
sector 1 140 cases with a total amount affected of almost EUR 29 million. The
provisional irregularity rate for this sector is 0.02%. Sectors with a rather
high irregularity rate are cereals (6.19%, essentially due to the situation in
Hungary), ancillary direct aids (1.26%), fisheries outermost regions (0.94%),
sugar (0.74%) and pigmeat (0.54%).

(11) 
80% of suspected fraud cases concerning the
financial years 2006-2010 is reported by young Member States. Italy is
responsible for another 12% of the reported suspected fraud cases. Almost no
fraud is reported by other old Member States.

7.5.3. 
Financial Years 2004-2005

(12) 
The financial years 2004-2005 can be considered
as finalised now audit plans have been executed, recovery procedures have been
started and irregularities have been reported.

(13) 
The total expenditure for the financial years
2004-2005 was about EUR 91 billion. Member States reported in total 4 402 cases
with a total amount affected of about EUR 214 million, which implies an EU-25 irregularity
rate of 0.24%.

(14) 
Member States classified 349 of the 4 402 cases
as suspected-fraud. 301 cases (86%) were reported by 2 Member States: Italy and
Poland. The other 48 cases were reported by 13 Member States. 9 Member States
did not classify any of their cases as fraud or suspected-fraud. Malta did not
report any irregularities.

(15) 
An EU-25 fraud rate (FrR) cannot be determined for
the financial years 2004-2005 now only a limited number of
suspected-fraud-cases were reported by a limited number (of regions) of Member
States. Almost no fraud was reported by Member States as France, Spain and
Germany.

8. 
European Fisheries Fund

Commission Regulation (EC) No 498/2007 of 26
March 2007[75]
lays down detailed rules for the implementation of Council Regulation (EC) No
1198/2006 which establishes the European Fisheries Fund (EFF) and defines the
framework for EU support for the sustainable development of the fisheries
sector, fisheries areas and inland fishing.

Chapter VIII of Regulation (EC) No 498/2007
contains the relevant provisions for the reporting of irregularities to the
Commission, establishing a set of rules that are very similar to those foreseen
for the Structural Funds.

As indicated in Chapter 5 of this document, the
reporting module for the EFF irregularities is currently under development and
will be released at the end of September 2011. Member States were asked to
withhold the irregularity reports until then.

9. 
COHESION POLICY (Annexes 15-20)

In line with the approach followed for the
Annual Report for 2009, the focus on yearly developments is further diminished
and the analysis concentrates more on the Programming Period developments in
order to reflect the real functioning and implementation of the Cohesion Policy
measures.

The legal provisions setting the reporting
obligation for the Cohesion Policy are contained in three different
regulations. Regulation (EC) No 1681/94 which covers the four Structural Funds[76] for all programming periods
until 2000-2006 included; Regulation (EC) No 1831/94 on the Cohesion Fund, with
the exception of the period 2007-2013); and Regulation No 1828/2006, which
covers the programming period 2007-2013. Annexes 17 to 19 provide details about
the irregularities reported under the different regulations.

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

In the following paragraphs, when referring to
irregularities reported in 2010, it should be kept in mind that, conformly to
the reporting obligations, Member States shall notify irregularities within two
months folliwing the end of each quarter. Therefore the “reporting period”
goes, in fact, from 1st March 2010 until 28 February 2011.

9.1. 
Reporting Discipline

During 2010 the deployment and implementation
of IMS progressed. During the year, almost all Member States completed or
integrated their reporting organisation and reporting workflow. Table 5-1 in
paragraph 5.1 gives an idea of the effort performed by Member States and OLAF
for this task.

In relation to the problematic situations
reported in 2009, progresses have been achieved in particular in relation to
the Czech Republic, which is now fully operational and Spain, whose
organisation has been set up in the beginning of May 2011. France has proposed
a direct link between its national system PRESAGE and IMS, but this technical
solution has not been finalised yet.

The only country which has showed a worsening
situation is Ireland, for which identified users are active exclusively for the
ESF. Also in relation to this fund, however, the use of IMS has been decreased during
2010.

As long as module 1828 is not deployed[77], module 1681 has been designed
to temporarily accept irregularities concerning the programming period
2007-2013.

In terms of reporting discipline, all Member
States having adopted IMS are showing remarkable progresses both in the use of
the system and in compliance with the reporting obligations, which is
facilitated by the tool. Without diminishing the achievements of other Member
States, whose spirit of constructive cooperation needs to be stressed, the
efforts of one country are worth being mentioned in this context: the Czech
Republic, which has managed to complete the reporting and successful migration
of all new and previously reported irregularities in a very limited period,
following the delays (due exclusively to technical reasons) of last year.

Despite progresses, some inconsistencies are
still noticed in the qualification of the irregularities, as already explained
in paragraph 5.2, and in the use of dates. It still happens, for instance, that
the date of establishment of the irregularity is indicated as happening before
the dates related to the committing of the irregularity; or that an
irregularity, whose described modus operandi is ‘false or falsified
supporting documents’ is qualified as ‘irregularity’ instead of ‘suspected
fraud’.

From a quantitative point of view, however,
these inconsistencies involve no more than 3% of the reported irregularities.

Lastly, still a significant number of
irregularities (also those reported in previous years), lacks the indication of
the period in which the irregularity took place and the date of establishment
of the irregularity. All Member States are requested to pay more attention to
these elements.

9.2. 
General Trends
9.2.1. 
Yearly trends

Annex 15 shows the overall trend of the
reported irregularities by year. In 2010 the number of reported irregularities
and related financial amounts involved increased in relation to 2009 and
represent the highest peak registered so far in the Cohesion Policy. 7 062
irregularities were received throughout the year, involving an overall amount
of EUR 1.55 billion, the highest ever. The number of irregularities increased
by 49%, while the irregular amounts increased by 31%.

Chart SF 1:
1994-2009 trend concerning number of reported irregularities for the Cohesion
Policy

Some concurring elements contribute to explain
this further increase:

(1) 
The number of irregularities reported for the
programming period 2007-2013 has now reached a significant level and it also
implies that 27 Member States are now reporting irregularities rather than 25;

(2) 
The increasing number of irregularities linked to
the programming period 2000-2006 is probably still due to the closure of these
programmes;

(3) 
The introduction and growing use of IMS has
accelerated the whole reporting procedure resulting in more irregularities
reported in the same period of time (for more explanations see paragraph 5.1.2).

Since 1998, the impact of reported
irregularities on the Cohesion Policy budget has showed two important
increases, the first in 2002 and the second in 2009-2010, as showed in Chart SF
2. The increase across time is due to a number of factors, of which the most
significant seem:

(4) 
The increase of the financial resources
allocated to this policy;

(5) 
A better overall understanding and
implementation of the reporting obligation, also resulting from the different
simplifications occurred in recent years;

(6) 
Improved tools put at disposal of Member States
to comply with the reporting obligation;

(7) 
Increased attention and improved controls also
following the remarks of the European Court of Auditors and the audit activity
performed by the Commission services.

Chart SF 2: Impact of irregularities on the
Cohesion Policy budget – 2000-2010

However, it should be kept in mind that reported
irregularities refer to programmes and projects that are of a multi-annual
nature and they refer to three different programming periods. Furthermore, the
budget for the year 2010, on which the impact of irregularities reported by the
Member States has been calculated, is indicating the resources allocated to the
fourth year of the programming period 2007-2013, while only a part of the
reported irregularities is referred to it.

This implies that a correct estimation of the
impact of irregularities and suspected frauds on the part of the European
budget dedicated to the Cohesion policy is possible only by analysing
irregularities by programming period. Paragraph 9.3 deals with these specific
issues.

The distribution among the Funds of the
irregularities reported in 2010 confirms the patterns emerged in previous
years, with the ERDF showing the highest number of irregularities and related
irregular amounts, as showed in Chart SF 3 below.

Chart SF 3:
Distribution of irregularities by Fund - 2010

The countries having reported the highest
number of irregularities in 2010 were the United Kingdom, Italy, Portugal,
Spain, Greece and Ireland (all having reported more than 600 irregularities).
The highest irregular amounts were reported by the Czech Republic, Italy,
Greece, the United Kingdom, Spain, Slovakia and Ireland (all above EUR 100
million). Annexes 17.1, 17.2, 18 and 19 detail the number of irregularities and
related amounts reported by Member State under the different programming
periods and funds.

9.2.2. 
Detection of irregularities

In 2010 the detection of irregularities
resulted from checks and controls which are in line with previous years.
‘National administrative or financial controls’ remain the most frequently
reported (in more than 27% of the cases), while other relevant shares refer to
‘Control of documents’ (15%) and ‘On-the-spot checks’ (12%). Table SF1 shows
how the different types of controls that resulted the most “effective” in 2009
performed in 2010.

Table SF1: detection methods –
comparison 2009-2010

The same methods showed an increase by 61% with
decreases only for ‘‘Documentary check’ and ‘Informant’.

The most “productive” method of detection
(meaning the method which has contributed to identify the highest irregular
amounts) was in 2010 ‘Control by police’ through which more than EUR 250
million of irregular amounts were identified (representing about 18% of the
total).

9.2.3. 
Types of irregularity

The vast 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 payment
of European money is made. As a result, among the most frequent types of
irregularity reported by Member States are the “not eligible expenditure” and
“missing or incomplete supporting documents”.

However, the second most important “source” of
irregularities is ‘Infringement of Rules concerned with Public Procurement’,
which is also resulting in the most “costly” typology, as it involves the
highest involved irregular amounts.

This element would suggest that provisions
related to Public Procurement require a review and a fine tuning to decrease
the impact of resulting irregularities.

Table SF2 shows the most frequent types of
irregularities together with the amounts involved and the indicative average
amount:

Table
SF2: Most frequent types of irregularities reported by Member States

The “nature” of the detected and reported
irregularities points at the fact that detected irregularities mainly are
related to the “Implementation stage” of the project life cycle, while a
smaller part refers to the “Selection / Procurement Stage”.

9.2.4. 
Suspected frauds

First estimations of which proportion of the
reported irregularities could be defined as “suspected fraud” were presented in
the Annual Reports since 2004. These attempts were mainly based on specific
analyses of the information reported by the Member States concerning the modus
operandi, the type of irregularity, the administrative status of an
irregularity..

Since January 1st 2006, Member States have to
“qualify” the reported irregularity, indicating whether it is a “suspected fraud”
or not. The concept of “suspected fraud” is necessary, because a given
situation can be defined as fraudulent only after a sentence is issued by a
competent court[78].

Thanks to the introduction of the new reporting
system IMS, Member States have classified (that is to say that they indicated
whether the reported situation was evaluated as an administrative irregularity
or a suspected fraud) 87% of the reported irregularities. It is a further encouraging
progress in relation to the previous year, when 85% of the reported cases
provided for this indication. France, Spain and partially Ireland are the only
Member States that still do not comply with this obligation and are the only
countries which do not use IMS yet.

By applying the method explained in paragraph
5.1.2, to the entire data set, some minor inconsistencies appear which bring
OLAF to consider the proposed classification of Member States somehow
questionable. These inconsistencies concern only 2% of the cases. All these
differences are related to cases that according to the analysis by the
Commission should have been classified as cases of suspected frauds.

It should also be highlighted that from a very
detailed analysis of the cases where differences exist, elements provided by
the Member States induce to consider correct the re-classification operated by
the Commission[79].

Chart SF4[80]
presents the trend of FFL[81]
and FAL[82]
in the last ten years calculated according to the Commission’s estimations.

Chart SF 4:
FFL and FAL from 2000 to 2009

Table SF3:
FFL and FAL from 2000 to 2009

FFL has reached the lowest point since 2002,
while FAL presents the first increase after three years of continuous decrease.
The decrease of FFL may be linked to the closure of the programming period
2000-2006 which would reveal a growing tendency of reporting of administrative
irregularities in order to align the reporting obligation with the expenditure
claims. The increase of the FAL, instead, is linked to a very limited number of
cases with an extremely high estimated financial impact. This “outliers” need
to be taken into account for a correct assessment of the figures[83].

On the basis of this estimation, the FrR[84] for the annual budget 2010 of
the Cohesion Policy is 0.74%.

However, this projection on the EU budget does
not imply that these amounts turn out into a loss. In fact, these amounts
relate to suspected fraudulent behaviours that have been detected by national
authorities and for which recovery procedures are ongoing. Moreover, when these
situations were detected in early stages of the process, the “potential” loss
is even decreased, because no payments or only interim payments have been
granted. The amounts still to be recovered linked to cases of “suspected fraud”
concern payments which impact on 0.31% of the EU budget for 2010.

9.3. 
Specific analysis – Analysis by Programming
Period: 2000-2006 and 2007-2013
9.3.1. 
Irregularities related to the programming period
2000-2006 – Structural Funds

The specific analysis focuses on the
programming period 2000-2006; the data set is composed of all the
irregularities related to it reported until the fourth quarter 2010. In order
to improve the comparability among the different Member States, the
irregularities referred to the Cohesion Fund are not included and a specific
paragraph is dedicated to it (see par. 9.3.3).

Table SF4 summarises the main figures and
indicators related to irregularities and suspected and established fraud cases
in relation to projects and operations financed under the programming period
2000-2006.

Table SF 4:
Programming Period 2000-2006 – overall situation and main indicators

The more information become available, the
clearer the overall picture becomes, with Irregularity and Fraud rates that are
more realistic. The indicators presented suggest that:

(1) 
in general, every 10 irregularities detected,
one is seemingly a potential case of fraud;

(2) 
for every EUR 100 detected as irregular, about
13 are linked to cases of suspected fraud;

(3) 
detections of irregularities concern a financial
volume that corresponds to almost 2% of the overall payments.

Table SF5 summarises, in relation to each of
the Structural Funds, the same information presented in Table SF 4.

Table SF5:
Programming Period 2000-2006 – overall situation and main indicators by Fund

FIFG is the fund for which the FrR is the
highest, followed by the ERDF and it is also the fund with the highest FFL.
However, ESF is the fund for which the highest number of cases of suspected
fraud were detected and reported.

The Cohesion Policy aims at supporting the
economy of regions lagging behind or in a difficult contingent economic
situation. The European support, which is always accompanied by a national
support, varies according to the fact that a region falls within the area of a
given objective[85].

Table SF6 summarises, in relation to each of
the Objective, the same information presented in Tables SF 4 and SF 5. The
Initiative “PEACE”[86]
has been grouped together with the INTERREG programmes.

Table SF6: Programming Period 2000-2006
– overall situation and main indicators by Objective

The distribution of the irregularities is to a
certain extent in line with the allocation of the financial resources among the
different objectives, with an over representation of irregularities related to
objective 2 programmes and an under representation of irregularities affecting
objective 3 programmes.

Furthermore, the IrR for the Objective 2
programmes is the highest (2.8% of the payments). The IrR for the Objective 1
equals the overall IrR (1.9%), while that for Objective 3 programmes, the Equal
initiative, Fisheries out of Objective 1 regions, and Leader+ are lower or
significantly lower (respectively 1.1%, 0.8%, 0.7% and 0.5%).

These elements may imply some under-reporting
in relation to programmes / initiatives presenting a very low IrR. The
interpretation of the irregularity rate of Objective 2 programmes is more
difficult as it may indicate a greater effectiveness of the control systems of
these programmes in detecting the irregularities or denote some problematic
aspects in their implementation. Information currently available does not allow
solving this dilemma.

Table SF7 summarises, in relation to each
Member State, the same information presented in Tables SF4, SF5 and SF6. For
convenience, irregularities related to INTERREG programmes have been grouped
together and have not been related to a specific country. The Initiative
“PEACE” has been grouped together with the INTERREG programmes.

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

Map SF1 displays the IrR by Member State
highlighting the high values of Luxembourg, Slovakia, the Czech Republic,
Slovenia and the Netherlands, with a value above 4%. Low values are displayed
for France, Finland, Sweden, Denmark and Lithuania. These countries may
represent examples of very best practises or may indicate, on the contrary,
under-reporting or low irregularity detection capability.

Map SF1:
IR by Member State

The high IrR of the mentioned countries could
also have its explanation in a higher percentage of the expenditure audited in
these countries. At the moment of closing this document, data about audited
expenditure were not available for all Member States and therefore did not
allow for this type of analysis to be conducted.

Map SF2 displays the FrR by Member State as
displayed in the last column of Table SF7, highlighting the high values, in
particular, of Italy, Poland, Latvia and Luxembourg. The high FrR of these two
countries should be interpreted in a positive way, rather than negative.

Good anti-fraud systems show, inevitably, bad
figures. By good anti-fraud system it is meant a system that does not only
detect fraud, putting in place adequate means and resources; but also duly
reports it according to the existing rules.

Map SF2:
FrR by Member State

Looking at the low values, among these are
Malta, Ireland, France and the Netherlands (0%); Belgium and Sweden (0.01%),
Slovenia (0.02%); Spain and Denmark (0.03%). If very low values are explainable
especially in small countries like Malta, they seem less realistic in larger
Member States like, in particular, France and Spain. Their result could
indicate either a lower detection capability or the non-reporting of a part of
eventually detected fraud. In the case of these two countries, it should also
be emphasised that values displayed on the table are entirely the result of
Commission estimation, as they failed to provide any qualification (see par.
9.2.5).

An interesting aspect to examine in the
framework of the protection of the EU financial interests is how effective the
preventive action of national authorities is and, when not prevented, what
proportion of the detected irregular amounts is effectively recovered from the
beneficiaries.

Table SF8 shows the irregular amounts reported
by each Member State on the whole programming period 2000-2006 (column A); the part
of these irregular amounts which has been decommitted (column B) and that for
which payments were made to beneficiary (column C); the balance that still
remains to be recovered[87]
(column D); the percentage of the irregular amounts which was not paid to
beneficiary (column E – prevention rate); and the percentage of the paid
irregular amounts that has been recovered (column F – recovery rate).

Table SF 8:
Irregular amounts, prevention rate and recovery rate by Member State – Programming
Period 2000-2006

Looking at column E, very high prevention rates
emerge especially in the Netherlands, Hungary, Sweden, Lithuania and Poland
(all between 82 and 43%). Some caution is needed on these data, because some
Member States may have not reported the irregularities they detected before
payment.

Looking at column F, very high recovery rates
are those of Luxembourg and Cyprus (100%), Ireland, Finland, Belgium, Spain,
Poland, Portugal and Greece. Also in this case some caution is due. In many
Member States is a common practise to exclude projects found as irregular from
the expenditure declaration to the Commission[88].
This implies that EU resources are somehow protected and those resources can be
re-used to finance other eligible projects, but the full burden of recovery is
shifted on national budgets. When this decision is taken, the Commission does
not receive anymore data about recovery of those sums and therefore the picture
presented here is only partial.

As a general conclusion, anyhow, recovery has
showed important progresses since 2009, as now more than 67% of the paid
amounts have been recovered or deducted. Recovery remains low for Hungary, the
Czech Republic and Slovenia (below 20%), which should put more attention to
this aspect.

9.3.2. 
Established fraud – Structural Funds

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

In relation to the programming period
2000-2006, Member States communicated the establishment of fraud in 162 cases.

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

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

The highest number of cases of established
fraud concerns the ESF, and Germany has been the State the most successful in
completing the related procedures (100 decisions), followed by Poland (35) and
Italy (14).

Case study SF1: Established fraud
against the ESF

Five photocopies of the original
attendance register for a particular training course were made and the date,
topic and trainer`s name were modified in order to match the details of five
other training courses that took place. The registers were submitted from the participating
partner to the leading partner as supporting documentation and subsequently
included in the expenditure report submitted.

The falsification was detected in the
course of routine checks of monthly expenditure reports carried out by the
Intermediate Body, in order to proceed to approval and payment of the eligible
amounts.

The sanction imposed was the loss of
European subsidies.

In 113 cases penal sanctions were imposed, of
which 75 were specified as ‘Imprisonment’.

Case study
SF2: established fraud against the ERDF

The beneficiary company included in
the accounts costs for acquisition of materials and of services for an amount
of about EUR 500 thousand. Through a check at the premises of the company and
on third parties involved it was established that part of those costs were in
fact fictitious, resulting from their overstatement in the related invoice.

Further checks led to discover that
other claimed costs were introduced for realised works, which were not
pertinent to the co-financed project.

The sanction imposed was the loss of
subsidies.

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

The average amount affected by established
fraud cases is about EUR 250 000 for the cases related to ERDF, about EUR
50 000 for ESF and EUR 25 000 for EAGGF – Guidance.

9.3.3. 
Irregularities related to the programming period
2000-2006 – Cohesion Fund

A total of 541 cases were reported since 2003,
concerning the Cohesion Fund for the programming period 2000-2006. A total
amount of EUR 297 million was reported of which EUR 65 million remain to be
recovered.

Table SF10 details the information by Member
State benefitting from this Fund.

Table SF10: N° of irregularities, related irregular amounts and
amounts to be recovered – Cohesion Fund 2000-2006

The table presents great disparities that do
not allow comparing the different Member States.

More interesting are the results of the
analysis focusing on the typology of projects financed by the Cohesion Fund
affected by irregularities.

As showed in Table SF11, the majority of
irregularities and related irregular amounts affect Environmental projects.
However, the irregularities affecting Transport Projects are of a higher
average value (more than double of the Environmental Projects).

Table SF11: Programming Period 2000-2006 – overall situation and
main indicators by type of project – Cohesion Fund 2000-2006

Table SF 11 shows irregularities and cases of
suspected fraud per typology of project. The table also presents the relevant
indicators used throughout the document. While it is difficult to make any
assessment of the FrR, due to the very limited number of cases, which affect
exclusively the ‘Environment’ projects, the IrR provides more information.
Reporting about the Cohesion Fund remains at levels that are lower than the
other funds, but ‘Environment’ projects (also in relation to the disbursed
amounts) seem to present more problems than ‘Transport’ projects.

9.3.4. 
Irregularities related to the programming period
2007-2013

For the first time, a descriptive analysis of
irregularities and suspected fraud cases related to the programming period
2007-2013 is presented.

In general, the quality of the received
information is higher than for the previous periods and, for instance, the
“requalification” of the irregularities interested only 10 cases on 1 281
(less than 1%).

Interestingly, the reporting trend is following
almost exactly that of the programming period 2000-2006 as showed in Chart SF
4, despite the wider derogations[89]
but including a higher number of reporting countries.

Chart SF4:
Comparison of reporting trends between the programming period 2000-2006 and
2007-2013

Table SF 12 shows the reported irregularities
by Fund, together with the general indicators used throughout the document.

Table SF12: Programming
Period 2007-2013 – overall situation and main indicators by Fund

The overall irregularity and fraud rates are,
at this stage of implementation of the programming period rather high. This
situation is, however, explained with two suspected fraud cases reported from
the Czech Republic and related to the ERDF, which display huge involved
amounts. This explains the high values for the overall FAL, IrR and FrR and for
the same indicators related to the ERDF.

Besides this, the other indicators prove a
certain consistency with those showed for the programming period 2000-2006.

9.4. 
Conclusions
9.4.1. 
Structural Actions

(1) 
The completeness and accuracy of irregularity
reporting keep on improving and the introduction of IMS is playing an important
role both on the quality and quantity of the reported irregularities. The
Commission is grateful to all countries having successfully implemented the
system and recommends to those, which have so far failed to do so (France and
Ireland), to speed up their access to IMS.

(2) 
In 2010, Member States have detected and
reported 7 062 irregularities, involving an overall amount of EUR 1.55
billion. Reported irregularities and related financial amounts have been
increasing in relation to 2009 with significantly (49% by number of cases and 31%
in financial volume). Three main reasons could explain these increases: the
closure of the programming period 2000-2006; the advanced phase of
implementation of the programming period 2007-2013; the wide implementation of
the new reporting system IMS, which has expanded the number of users submitting
irregularity reports and reduced the time necessary to transmit these reports.

(3) 
Given the multi-annual nature of the programmes
run under the Cohesion Policy, the analysis by Programming Period provides more
interesting elements than an analysis based on yearly budgets.

(4) 
Checks and controls seem to become more
effective, as the same detection methods showed the capability of detecting
more irregularities of higher financial volume.

9.4.2. 
Programming Period 2000-2006

(5) 
Throughout the Programming Period 2000-2006, for
which closure procedures have been initiated in 2010, the overall Irregularity
Rate is about 1.9%, while the Fraud Rate is about 0.26%. These rates
exclusively represent the impact on the payments from the Commission to the
Member States of, respectively, irregularities (including suspected and
established fraud) and suspected and established fraud cases (alone). In both
cases, therefore, these rates do fail to indicate what the real dimension of
irregularities and fraud is. These rates represent the results of the checks
and audits of national competent authorities and no extrapolation is allowed
unless the size of the audited and checked sample would be known.

(6) 
The highest Irregularity Rates concern the ERDF (2.5%)
and Objective 2 programmes (2.8%). For the ERDF the most plausible explanation
is that this Fund finances projects of a higher value and therefore
irregularities tend also to be of greater amount.

(7) 
In terms of Fraud Rate, looking at the funds, FIFG
shows the highest rate of suspected fraud (0.29%), followed by the ERDF (0.28%);
from the objectives perspective, Objective 1 programmes present the highest
rate (0.30%), followed by the Fisheries out of Objective 1 programmes (0.22%)
and Objective 3 (0.18%).

(8) 
Italy, Poland, Latvia and Luxembourg present the
highest Fraud Rates among Member States. A higher number of reported cases of
irregularities or suspected fraud does not necessarily mean that more
irregularities or fraud are committed or that a Member State is more vulnerable
to them. A more developed audit or anti-fraud strategy, tailor made audits,
higher number of performed audits or investigations will normally lead to a
higher number of detected irregularities and fraud. Therefore, it is possible
that Member States with a higher irregularity or fraud rate perform better tan
Member States with a lower irregularity or fraud rate.

(9) 
Among the Member States with very low fraud
rates emerge Spain and France (especially in relation to their size and to the
financial support received) in particular, whose results could indicate either
a lower fraud detection capability or the fact that a part of detected fraud
may remain unreported.

(10) 
Germany is the most successful Member State in
completing procedures for the establishment of fraud in relation to the
programming period 2000-2006, followed by Poland and Italy.

(11) 
Recovery rates throughout the Programming Period
2000-2006 are good (almost 70%), though they may be influenced by the practise
of excluding projects found to be irregular from the expenditure declaration to
the Commission.

9.4.3. 
Cohesion Fund

(12) 
Data related to the Cohesion Fund remain too
fragmented to provide a reliable picture, but highlight that Environmental
projects present an irregularity rate higher than the others. The introduction
of IMS has already played a positive impact on the quality and reliability for
the Cohesion Fund, showing for the first time also cases of suspected fraud.
All these cases are related to Environmental projects.

10. 
Pre-accession
funds (Annexes 21-22)

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

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

Agenda 2000[90]
set up two financial mechanisms, ISPA[91]
and SAPARD[92],
to complement the actions of the PHARE[93]
programme, which has been the EU aid programme for the EU-12[94] since 1990. The 10 Member States that joined the EU in 2004
received a Transition Facility in 2004-2006. Bulgaria and Romania received
a Transition Facility in 2007 which is regarded as post-accession assistance.

Croatia benefits from several types of
pre-accession assistance like Community Assistance for
Reconstruction, Development and Stabilisation (CARDS) (2001-2004), PHARE and ISPA (2005-2006) as well as SAPARD (2006). It is the only country subject to
reporting CARDS[95]
irregularities since 2006[96].

Turkey has been receiving pre-accession
assistance since 2002[97].
The financial support provided falls under two periods: 2002-2006 - Turkish
Pre-accession assistance (TPA) with a total allocation of EUR 1 249
million and 164 projects and 2007-2013 – Instrument for
Pre-accession Assistance (five components) with a total
allocation of EUR 4 873 million.

Since 1 January 2007 EU pre-accession assistance
has been channeled through a single Instrument for Pre-accession Assistance
(IPA)[98]
designed to deliver support for candidate and potential candidate countries.
The preliminary allocation for IPA country programmes in the period 2007-2013
is EUR 8.4 billion (in 2010 – EUR 1.6 billion).

In the following paragraphs, when referring to
irregularities reported in 2010, it should be kept in mind that, conformly to
the reporting obligations, Member States shall notify irregularities within two
months folliwing the end of each quarter. Therefore the “reporting period” goes,
in fact, from 1st March 2010 until 28 February 2011.

10.1. 
Reporting discipline

As specified in paragraph 5.1, specific modules
for Pre-Accession Assistance (PAA Module) and for the Instrument for
Pre-Accession Assistance (IPA module) irregularity reporting have been developed.

In general, reporting countries have showed
further progress in reporting compliance. The introduction of IMS has produced
improvements in terms of data quality and, especially, completeness and the
process is expected to result in further improvements with the full
implementation of the two modules (see par 5.1.2).

In general the communications are very
complete. Some mistakes can be still encountered in relation to the financial
aspects of the reports, but the level of completeness of the reported
information is close to 100% for all countries. In terms of timeliness of the
reporting of the newly detected irregularities, 73% are reported within the
deadlines set in the regulation. Another 22% are reported within 12 months from
detection leaving only 5% of the irregularities reported later than 1 year from
detection, which is a positive result. In this context, special attention
should be paid by Croatia (50% of irregularities are reported later than 12
months after detection) and Poland (35%). Some improvements may still be
achieved by Hungary and Turkey (8%).

The improved completeness of the information
allows now for some assessment of the data quality. Here some inconsistencies
are still detected, as, for instance, in 44 cases on 424 some beneficiary
countries indicate a date of first information leading to the detection of the
irregularity which is posterior to the date of the primary administrative or
judicial finding[99].
In a limited number of cases (11 on 424) the qualification of the irregularity
is in contradiction with other information provided in the communication, as
explained in paragraph 5.2.

10.2. 
General Trends

The following analysis intends to provide an
overview of the reported irregularities in 2010 and to compare the reporting
trends observed during the period 2002 -2010.

In 2010 European Anti-Fraud Office (OLAF)
received 1 362 reports on pre-accession funds (PHARE, SAPARD, ISPA,
Transition Facility (TF), CARDS, Turkish
pre-accession instrument - TPA) from the Member states
and Candidate countries. The received information consists of 424 new cases
detected by the national authorities in 2010 and 939 follow-up reports on the
previously reported cases.

The total European contribution amount affected
by irregularities in 2010 (programming period 2000-2006) was EUR 83 741 577.
For the 2007-2013 period, in 2010 2 irregularities were reported involving EUR
1 002 475.

Annex 21 provides more details about the
information above, distinguishing also by Fund.

10.2.1. 
Overall trend

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

In fact, reporting countries happen to be at different
stages of the project cycle. The EU-10 group has finalized the projects and
reports very few new cases, the focus, however, remains on administrative and
judicial follow-up. The EU-2 group reports a significant number of newly
detected cases which certainly affect the overall tendency. Croatia and Turkey
have become more active in reporting, though, in comparison to 2009 they show a
decrease of newly detected and reported cases; increasing tendencies are,
however, expected in the coming years[100].

The number of new cases received on
pre-accession assistance has decreased by 40%, while the total number of
communications has decreased by 48% comparing to 2009 figures.

Chart PA1 shows an important decrease of the
reported number of cases of irregularities and suspected fraud and the related
EU irregular amounts. It seems to be the first significant signal of the
“phasing-out” effect of the EU-2 group and confirms the decreasing trend of
EU-10.

Chart PA 1: Irregularities
communicated by reporting countries (2002-2010)

Irregularities are not distributed equally
among the reporting countries due to different periods of eligibility of
expenditure, implementation phases, as well as varying types of support instruments.

In 2010 EU-10 account for 15%, Bulgaria and
Romania for 81%, Croatia and Turkey for 4% of the total number of cases.
Talking about the total EU affected amount as reported, EU-10 make 4%, Bulgaria
and Romania 89%, Croatia and Turkey 7%.

Chart PA
2: Distribution of reported cases in 2010 by groups of countries - number of
cases (left) and related irregular amounts (right)

Chart PA2 shows that the greater part of the
analysed data set (irregularity reports received in 2010) still originates from
Romania and Bulgaria. Consequently, the trends are highly influenced by their
reporting patterns.

Comparing 2009 and 2010 only Hungary shows an
increase in the number of reported irregularities (18%). For the reported EU
affected amounts increases are evident for Croatia (956%), Latvia (1 037%)
and Romania (59%). The remaining countries all disclose a falling tendency.

Summary details for all irregularities received
since 2002 are presented in Annex 22.

10.2.2. 
Irregularities affecting different funds

All funds concerned show important decreases,
with the only exception of PHARE, for which the reported number of cases has
remained stable, while the related irregular EU amounts have also decreased (by
42%). The biggest and most remarkable change concerns the funds specifically
related to the Candidate Countries group, with the Pre-Accession Assistance for
Turkey decreasing by 50% for the number of irregularities reported and by 65%
for the related irregular EU amounts and for CARDS (the assistance to HR for
reconstruction and development) for which no irregularities have been reported.
Important decreases were also observed for SAPARD and ISPA (around 45% in the
number of reported cases and 26% for the related financial volume).

As demonstrated by Chart PA 3 SAPARD maintains
the first place for both the cases reported in numbers (60%) and amounts (80%).

Chart PA
3: Distribution of communications per fund in 2010 - number of cases (left) and
related irregular amounts (right)

10.2.3. 
Amounts involved and impact on budget

The irregularity rate on the budget for 2010 is
5.75% (down from 9.75% of the previous year) if calculated on the payment
appropriations (EUR 93 million irregular, including prevented irregularities,
on EUR 1.6 billion of payment appropriations). However, this figure should be
taken with great caution as irregularities are not necessarily related to that financial
year. In most cases irregularities have occurred earlier, but were only traced
(or reported) in 2010.

It would be more precise to calculate the
impact of irregularities (irregularity rate) on the whole programming period (2002-2006)
and the 'actual' beneficiary countries. Thus the result is 1.6% (EUR 305 million
total irregular amount reported so far on the overall budget of roughly EUR 19
billion). Data are still preliminary to provide a similar rate for the period
2007-2013.

10.2.4. 
Detection of irregularities

Most of the irregularities in 2010 were
detected by means of ‘Control of documents’. The second most frequent method is
‘Ex-post controls’. Control of documents and audit make key responsibilities of
the national authorities implementing EU funds under decentralised and shared
management modes. In general, the most frequent methods of detection imply both
ex-ante and ex-post controls. It is a natural outcome since the data set
involves projects under different stages of implementation.

The most “productive” method of detection is
the ‘Control by Commission services’, which was particularly significant in
relation to Romania and appeared, though in a limited number of cases, also in
Bulgaria and Hungary. Through these controls, in conjunction also with
associated controls with national services, more than 42% of the total reported
irregular amounts were detected. This finding is once more underlining the
importance of audits performed by responsible Commission services and
investigations run by OLAF.

On the spot controls account for 7% of the
detected irregular amount and were effectively used in Bulgaria, Czech Republic,
Poland and Romania.

In average, it takes about 34 months to detect
an irregularity, with Croatia and Turkey showing the shortest delay
(respectively 5 and 14 months) and Poland and Slovakia the longest (47 and 49
months respectively). This analysis is possible for the first time, considering
the completeness of the reported information.

10.2.5. 
Detected types of irregularities / modus operandi

The most common type of irregularity by the
number of received cases and amounts affected in 2010 was ‘Failure to respect
other regulations/contract conditions' (20% of amounts), followed by 'Falsified
supporting documents' (17%) and ‘Failure to respect deadlines' (12%).

The use of ‘Falsified supporting documents’
clearly refers to cases of suspected fraud and consequently will be dealt with
more in detail in paragraph 10.3. It is however important to highlight that,
consistently with their ‘nature’ they represent the greatest threat to the EU
financial interests, as cases implying such modus operandi cover 40% of
the total irregular amounts reported. 19% of the total irregular amounts were
interested by ‘Failure to respect other regulations/contract conditions'.

10.3. 
Specific analysis
10.3.1. 
Suspected and established fraud

In 2010 cases classified as suspected fraud
(FFL) made 24% (101) of irregularities and 50% of the EU affected amount (FAL)
(EUR 117 million). For the sake of transparency it is worth mentioning that
OLAF reclassified 2.6% of cases into 'suspected fraud' according to the method
and conditions explained in paragraph 5.2. These figures are quite stable in
relation to 2009 as showed in Chart PA 5.

Chart PA 5: Share
of suspected fraud and established fraud in reported cases

Meanwhile, it is important to note that the
analysed cases are just 'suspected fraud' and are undergoing investigation by the
relevant national authorities. The final precise figures can only be presented
on 'established fraud' cases, when the court rulings are made. In 2010 only one
case of established fraud was reported by Hungary in relation to PHARE. Up to
now, only other three cases in total were defined as established fraud: one by
Poland (SAPARD) and 2 by Romania (PHARE).

80% of the cases of suspected fraud were
detected in relation to SAPARD and 17% in relation to PHARE.

Case study:
multiple funding of costs - SAPARD

During the on-spot-check it has been found that
the same premises were used together with other beneficiaries of financial
support from SAPARD for other projects. Administrative costs are supported only
in the implementation of one project, but are presented as eligible costs also
in all other projects, and those claims are supported with falsified documents.

6 out of the 10 countries, which reported
irregularities in 2010, notified cases of suspected or established fraud.
Romania communicated the highest number of cases (56, representing 56% of the
total cases of suspected fraud) followed by Bulgaria (35, representing 35%).
Clearly these figures are influenced by the fact that EU2 is still the group of
countries that reports the highest number of irregularities.

What needs to be pointed out is that the
greatest share of the cases reported by Bulgaria has been the result of
detection by national authorities, which is a signal of discontinuity with the
past, when most cases were detected on initiative or on request by European
bodies or institutions. In the case of Romania, on the contrary, the trigger
for detection of cases of suspected fraud is ‘controls by European services’
alone or in association with national services.

As it could be expected, cases of suspected
fraud take longer in average to be detected than administrative irregularities:
53 months is the average gap between the beginning of the possible fraud and
detection (the minimum value is 21 months for Turkey and the maximum is 60
months for Latvia and Romania).

As already pointed out, the most recurrent modus
operandi is the use of ‘Falsified supporting documents’.

Case study PA
2: fictitious purchase – PHARE

A fictitious purchase of equipment was
fraudulently registered in the accounts of a company benefitting from PHARE
support. In reality, the equipment stayed in the same premises, because the
seller and buyer of the equipment have the same ownership.

10.3.2. 
Cases of suspected fraud related to the
programming period 2002-2006

In order to establish a meaningful fraud rate
it is necessary to abandon the approach of the reported cases per year and
analyse a financial period as a whole. This can be done in relation to the
three funds SAPARD, PHARE and ISPA implemented in the period 2002-2006.

The first observation looking at these cases is
that their distribution across the funds is not balanced. The numbers of cases
received since 2002 manifest predominance of SAPARD with 436 cases out of which
80 for 2010. PHARE counts 174 for all years of which 17 in 2010, while ISPA
only 8.

10.3.3. 
Fraud rates related to SAPARD – programming
period 2002-2006

Being SAPARD the fund presenting the most
important exposure to cases of suspected fraud, it seems interesting to update
the analysis already conducted for the reporting year 2009.

The total fraud rate for the whole programming
period of SAPARD is at the level of 3.5%. However, looking at the individual
reporting countries in Table PA 1, it becomes obvious that the rate is highly
affected by a particular situation in Bulgaria. Bulgarian fraud rate for SAPARD
is 15.2%, which is the highest rate seen in all the funds analyzed (see
chapters 8 and 9). Meanwhile, the Czech Republic, Latvia, and Slovakia have
zero fraud rate. Taking into account the fact that SAPARD programme was prone
to particular irregularities, and the same modus operandi for suspected
fraud were identified in several countries, there are some doubts whether all
the detected cases of suspected fraud were reported to the Commission. However,
as already indicated in the paragraph dedicated to general trends, reporting of
new cases is highly unlikely, due to the phasing-out from pre-accession
assistance.

Map PA 1.
Fraud rate for SAPARD by reporting country

Table PA 1:
Fraud rates by reporting country – period 2002-2006 SAPARD

Almost 25% of SAPARD projects affected by suspected
fraud present a public contribution (national and EU support) between EUR 100 000
and 250 000. However, also project with a value up to EUR 5 million are
interested by cases of suspected fraud. The tendency for projects with higher
value to be affected by suspected fraud has increased with the reports received
in 2010 especially due to the cases received from Romania.

10.3.4. 
Estimated Fraud Rate for the Programming Period
2002-2006 – all funds

The percentage of the sum of suspected fraud in
the total allocated amount (FrR) for period 2002-2006 is 0.65%. It represents
the highest rate among all the policies examined in this document and for this
reason stresses the need for continuous monitoring of beneficiary countries of
pre-accession assistance, which are faced with challenges and risks that they
learn to manage only through experience and confrontation with these problems.

10.3.5. 
Recovery

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

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

Table PA 4 demonstrates the recovery situation
per country. The table provides an overview for all the years and all the
funds. It presents the recovery rate which is the percentage of the total
amount recovered on the irregular amounts effectively disbursed. Malta has the
highest recovery rate, followed by Estonia and Poland. Apart from these three
countries, which show a recovery rate above 50%, the others present a situation
that raises some elements of concern. The average of the beneficiary countries
is 30% and the situation appears particularly serious in Bulgaria, Turkey,
Lithuania, Latvia and Slovenia (with a recovery rate from 8.2 to 17.4%).

The recovery rate is much lower for the cases
of suspected fraud and is around 14% (increasing from 2009 when it was just
4.6%). It seemingly suggests that recovery process in cases undergoing
prosecution is even more difficult. Frequently recoveries are not even
initiated when the case is under pre-trial investigation or they are stopped
waiting for the court ruling. Administrative procedures and criminal
investigation in most countries do not go hand in hand, therefore recovery
rates are influenced.

Table PA 2 also shows the ‘prevention rate’,
which represents the part of the irregular amounts for which detection has
prevented a part of the undue payment to happen. Prevention rate is low in
Lithuania, Romania and Turkey (ranging from 3.5% to 23%) and high in Croatia,
Slovenia and Cyprus (all above 90%). Latvia and Bulgaria present prevention
rates above 60%.

Table PA 2:
Recovery by reporting country

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

10.4. 
Conclusions

(1) 
In 2010 reported irregularities and related
irregular amounts showed for the first time an important decrease. This could
be a clear signal of the impact of the phasing out of EU-10 and EU-2 from the
pre-accession assistance phase.

(2) 
This decrease is not compensated, until now, by
a significant increase of reported irregularities from Candidate countries.
Next years will indicate if the experience acquired in managing the great
enlargements of 2004 and 2007 has paid off in correcting the problems
encountered in the previous phase of the pre-accession assistance.

(3) 
The decrease is visible for all funds and almost
for all countries. The majority of the new detected and reported cases are
still related to the SAPARD fund in Romania and Bulgaria.

(4) 
An important development is confirmed in
Bulgaria, where irregularities and suspected fraud cases are now mainly
detected by national services rather than on request or on action by European
institutions and bodies. On the contrary, the situation in Romania appears the
opposite, with an increasing “weight” of irregularities and suspected fraud
cases detected following a control by European services or on their request.

(5) 
The total fraud rate for the whole programming
period of SAPARD is at the level of 3.5%. Bulgarian fraud rate for SAPARD is around
15%, which is the highest rate seen in all analysed funds (Cohesion Policy and Agriculture).
Meanwhile the Czech Republic, Latvia, and Slovakia have zero fraud rate which
puts in question the reliability of the reported information or the fraud
detection capability in this specific sector. Considering the advanced stage of
phasing-out from pre-accession assistance for these countries, it is very
unlikely to see any variation for their fraud rate in the future.

(6) 
The issue of more performing recovery procedures
still needs to be addressed. The overall recovery rate is about 30% and is the
lowest among all policy areas examined in this document. Action is recommended
especially for Bulgaria, Turkey, Lithuania, Latvia and Slovenia. In presence of
cases of suspected fraud, the recovery rate is even lower and is around 14% for
the whole programming period. The recovery process in cases undergoing
prosecution is complex and lengthy. Administrative procedures and criminal
investigation in most countries do not go hand in hand, therefore recovery
rates are influenced. Safeguarding/conservation measures should be put in place
for suspected fraud cases to make sure that after final court ruling recovery
can still take place (in the form of seizure of assets, suspension of payments,
bank guarantees, et cetera) or recovery procedures should be carried out
regardless of the finalisation of the judiciary proceedings.

(7) 
The high Fraud Rate showed by this policy
underlines the importance of continuous monitoring and attention by the
implementing services in relation to the new Beneficiary Countries which are
likely to reproduce some of the problems encountered in the management of the
first and, so far, most important pre-accession assistance.

11. 
DIRECT EXPENDITURE – CENTRALISED DIRECT
MANAGEMENT 
11.1. 
Methodology and scope

This chapter contains a descriptive analysis of
the data on recovery orders issued by Commission services in relation to
expenditures managed under ‘centralised direct management’[101], which is one of the four
implementation modes the Commission can use to implement the budget. This
chapter is based on data retrieved from the ABAC system, as described in
paragraph 5.1.3. Because of the limitations explained therein, the analysis
presented in the following paragraphs should be treated extremely cautiously.

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

· The number and corresponding financial amounts of recovery orders,
which were registered after validation by the authorising
officer, including information on the place of residence of the contract
partner of the Commission and the budget line concerned; the method of
detection; the type of irregularity identified and the time span between the
approval of a budget commitment, the notification of a recovery order and the
return payment of the undue funds to the Commission;

· The amount of a commitment to which a recovery order
is linked and for which a payment has been made to a beneficiary.

· In the remainder of this chapter, the term recovery refers to the
recovery order and the financial amount involved, whereas the term
qualification refers to the qualification of the recovery order: irregularity
or suspected fraud.

11.2. 
General analysis

In 2010, the Commission services registered
1021 recovery orders in ABAC that were qualified as irregularities or suspected
fraud. The committed budget for these 1 021 recoveries was EUR 6.6
billion, of which EUR 43.1 million was identified as irregular[102].

11.2.1. 
Financial amounts involved

The financial impact of the 1 021
recoveries registered in 2010 was EUR 43.1 million, which includes an amount of
EUR 3.6 million for the 21 recoveries qualified as suspected fraud and notified
to OLAF. Table DE1 gives an overview of the aggregated financial commitments by
policy domain as well as the number and financial amounts of recoveries. The
classification into policy domain is provided for ‘internal policies’ and
‘external actions’. Table DE2 gives a more detailed classification of the
policy area to which the recovery orders relate. The recovery orders have been
issued for commitments that relate to several budget exercises, some even
dating back to the 1990s, during which different budget headings were used. The
budget structure of 2008 was used for the table DE2. In cases where the budget
title of a commitment from an earlier budget exercise does no longer exist, the
most resembling budget title from the 2008 budget was used. In both tables the
column ‘commitments’ contains the aggregate of all the commitments made during
previous budget exercises for which recovery orders were issued in 2010. In the
table DE1 the last column indicates the amount to be recovered (including
suspected fraud) as percentage of the aggregated commitments.

Table DE 1: Commitments
for which recoveries were issued in 2010 (number and amounts) by policy domain.

Area || Commitments || Recoveries || Recoveries as % of commitments

€ 1,000 || % || Average € 1 000 || N || % || € 1,000 || % || Average € 1 000

Internal policies || 6,261,174 || 95.5 || 6,850 || 914 || 89.5 || 34,510 || 80.0 || 37.8 || 0.6%

External actions || 295,639 || 4.5 || 2,763 || 107 || 10.5 || 8,610 || 20.0 || 80.5 || 2.9%

Total || 6,556,813 || || 6,422 || 1,021 || || 43,120 || || 42.2 || 0.7%

The table shows that the irregular amounts only
represent 0.7% of the value of the commitments for which recovery orders
were issued. More recovery orders were issued for commitments made
under the internal policies domain than the external assistance actions, but
the relative share of recoveries in commitments is higher in the external
actions area.

Table DE2 further specifies the recoveries by
budget title. It should be observed that there is not always a direct link
between the budget title or budget line and the Directorate General dealing
with its implementation, as several DGs can share the appropriations on a budget
line. The information in this table does not refer to the number
of irregularities or suspected fraud per Directorate General. In five cases
recovery orders were linked to commitments from more than one budget line; in
order to calculate the number of recoveries per budget title, a recovery order
was assigned to the budget title to which the highest irregular amount was
linked. Therefore the budget title "Regional Policy" refers to an
irregular amount for which there is no link to a specific recovery order.

Table DE 2:     Recoveries
(number and amounts) by qualification and budget title, 2010.

Budget Title || Commitments || Recoveries

Irregularity || Suspected Fraud

€1 000 || N || % || €1 000 || % || N || €1 000

Economic and financial affairs || 660 || 3 || 0.3 || 11 || 0.03 || ||

Enterprise || 683 916 || 59 || 5.9 || 918 || 0.2 || 1 || 462

Employment and social affairs || 25 016 || 7 || 0.7 || 175 || 0.5 || ||

Agriculture and rural development || 381 || 1 || 0.1 || 8 || 0.02 || ||

Energy and transport || 436 598 || 65 || 6.5 || 4 196 || 10.9 || ||

Environment || 32 696 || 21 || 2.1 || 1 705 || 4.4 || ||

Research || 2 479 649 || 226 || 22.6 || 7 269 || 18.8 || 5 || 313

Information society and media || 2 493 859 || 319 || 31.9 || 12 152 || 31.4 || 5 || 82

Fisheries and maritime affairs || 650 || 1 || 0.1 || 21 || 0.1 || ||

Regional policy || 721 || 0 || 0.0 || 5 || 0.01 || ||

Education and culture || 43 528 || 134 || 13.4 || 3 779 || 9.8 || ||

Communication || 68 || 2 || 0.2 || 5 || 0.01 || ||

Health and consumer protection || 200 || 1 || 0.1 || 90 || 0.2 || ||

Area of freedom, security and justice || 57 071 || 59 || 5.9 || 2 573 || 6.7 || ||

External relations || 188 049 || 49 || 4.9 || 3 439 || 8.9 || 6 || 2 514

Trade || 214 || 4 || 0.4 || 1 || 0.0 || ||

Development and relations with African, Caribbean and Pacific (ACP) States || 91 668 || 26 || 2.6 || 1 798 || 4.7 || 3 || 262

Enlargement || 14 070 || 17 || 1.7 || 590 || 1.5 || 1 || 5

Humanitarian aid || 1 637 || 1 || 0.1 || 0.2 || 0.0 || ||

Commission's administration || 5 549 || 3 || 0.3 || 671 || 1.7 || ||

Statistics || 611 || 2 || 0.2 || 72 || 0.2 || ||

TOTAL || 6 556 813 || 1000 || 100 || 39 482 || 100 || 21 || 3 638

11.2.2. Financial amounts involved by geographical area and Member State

Table DE3 summarizes the recoveries per
geographical area, where the beneficiary of the EU funding resided. The column
'average' indicates the average amount (in EUR 1 000) per recovery.

Table DE 3:     Recoveries
(number and amounts) by region of residence and qualification, 2010.

Contractor place of residence || Commitments || Recoveries

Irregularity || Suspected Fraud

€1 000 || N || % || €1 000 || % || Average || N || €1 000 || % || Average

ACP || 314 472 || 6 || 0.6 || 58 || 0.1 || 9.7 || 2 || 523 || 14.4 || 261

Africa || 22 711 || 2 || 0.2 || 48 || 0.1 || 23.9 || 1 || 8 || 0.5 || 8

America || 26 584 || 8 || 0.8 || 452 || 1.1 || 56.5 || 2 || 2 235 || 61.4 || 1 118

Asia & Pacific || 80 317 || 11 || 1.1 || 1 493 || 3.8 || 135.7 || 1 || 166 || 4.6 || 166

EFTA || 162 207 || 22 || 2.2 || 1 299 || 3.3 || 59.1 || || || ||

EU || 5 875 452 || 917 || 91.7 || 34 998 || 88.6 || 38.2 || 16 || 715 || 19.6 || 45

NEP & PA || 75 069 || 34 || 3.4 || 1 133 || 2.9 || 33.3 || || || ||

TOTAL || 6 556 813 || 1 000 || 100.0 || 39 482 || 100.0 || 39.5 || 21 || 3 638 || 100.0 || 106

Most of the legal entities concerned have their
residence in the European Union: 933 recovery orders (91.4% of 1 021) were
issued for an amount of EUR 35.7 million (82.8% of EUR 43.1 million). 88
recovery orders (8.6%) were issued to entities residing outside the EU, for a
total amount of EUR 7.4 million (17.2%). In the latter category, 36% of the
amount of recoveries relates to entities residing on the American continent;
with total value of irregular amount EUR 2.6 million, followed by beneficiaries
residing in the Asian and Pacific region (EUR 1.7 million).

There were five cases qualified as suspected fraud
involving beneficiaries residing outside the EU. The biggest one concerned
beneficiary registered in Paraguay, for which a recovery order was issued
amounting to EUR 2.2 million.

Table DE4 gives an overview of the recoveries
per Member State of residence of the entities in the European Union and the
qualification of the recovery. This table details the findings for the European
Union reported in table DE3. The 'average' column is the average amount, in EUR
1 000, per recovery.

Table DE 4:     Recoveries
(number and amounts) by Member State and qualification, 2010.

Contractor place of origin || Commitments € 1 000 || Recoveries

Irregularity || Suspected Fraud

N || % || € 1 000 || % || Average || N || € 1 000

AT || 160 463 || 39 || 4.3 || 831 || 2.4 || 21.3 || ||

BE || 219 538 || 72 || 7.9 || 3 418 || 9.8 || 47.5 || 1 || 8

BU || 33 || 1 || 0.1 || 14 || 0.0 || 14.4 || ||

CY || 6 014 || 3 || 0.3 || 334 || 1.0 || 111.5 || 1 || 5

CZ || 40 944 || 16 || 1.7 || 747 || 2.1 || 46.7 || ||

DE || 899 950 || 84 || 9.2 || 2 449 || 7.0 || 29.2 || 1 || 225

DK || 79 284 || 11 || 1.2 || 663 || 1.9 || 60.3 || 5 || 82

EE || 7 669 || 4 || 0.4 || 20 || 0.1 || 5.0 || ||

EL || 224 625.3 || 45 || 4.9 || 1 030 || 2.9 || 22.9 || ||

ES || 625 551.7 || 80 || 8.7 || 1 936 || 5.5 || 24.2 || 2 || 82

FI || 20 733.7 || 14 || 1.5 || 631 || 1.8 || 45.0 || ||

FR || 1 154 097.1 || 131 || 14.3 || 4 889 || 14.0 || 37.3 || ||

HU || 132 249.1 || 23 || 2.5 || 525 || 1.5 || 22.8 || ||

IR || 42 128.4 || 8 || 0.9 || 1 004 || 2.9 || 125.6 || 4 || 276

IT || 709 395.3 || 135 || 14.7 || 5 377 || 15.4 || 39.8 || 1 || 12

LT || 43 956.5 || 5 || 0.5 || 665 || 1.9 || 133.1 || ||

LU || 24 343.1 || 9 || 1.0 || 195 || 0.6 || 21.7 || ||

LV || 30.2 || 1 || 0.1 || 3 || 0.0 || 2.8 || ||

MT || 12 912.3 || 5 || 0.5 || 253 || 0.7 || 50.6 || ||

NL || 366 265.6 || 55 || 6.0 || 2 467 || 7.1 || 44.9 || ||

PL || 70 825.8 || 11 || 1.2 || 162 || 0.5 || 14.7 || ||

PT || 97 882.9 || 16 || 1.7 || 518 || 1.5 || 32.4 || ||

RO || 4 235.2 || 3 || 0.3 || 156 || 0.4 || 52.0 || ||

SK || 1 727.1 || 3 || 0.3 || 75 || 0.2 || 25.2 || ||

SL || 108 578 || 7 || 0.8 || 671 || 1.9 || 95.9 || ||

SV || 39 320.4 || 19 || 2.1 || 681 || 1.9 || 35.9 || ||

UK || 782 699.3 || 117 || 12.8 || 5 283 || 15.1 || 45.2 || 1 || 25

TOTAL EU || 5 875 452 || 917 || 100.0 || 34 998 || 100.0 || 38.2 || 16 || 715

Most of the recoveries (for irregularities and
fraud) were made from beneficiaries residing in 5 Member States: Italy (14.6%),
France (14.0%), the United Kingdom (12.6%), Germany (9.1%) and Spain (8.8%).
Entities from which the highest aggregated amounts have to be recovered are
residing in Italy (15.1%, EUR 5.4 million), the United Kingdom (14.9%, EUR 5.3
million), France (13.7%, EUR 4.9 million), Belgium (9.6%, EUR 3.4 million) and
Germany (7.5%, EUR 2.7 million). These five Member States account for 60% of
the amounts of recoveries. The high rates of Belgium can be explained by the
fact that most of the European Institutions have their seats in this Member
State: this leads to the conclusion of a relative higher number of contracts
and grant agreements with entities residing in this country.

In 2010 three quarters of recovery orders
involving cases of suspected fraud were reported to involve beneficiaries
residing in the EU. However the biggest amount was linked to one fraud case
perpetrated by a beneficiary residing in Paraguay, this single case involved
EUR 2.2 million defrauded in a development project. The full amount has been
already recovered. This one recovery represents 60% of all recovered amounts
qualified as suspected fraud. The highest number of recoveries with suspected
fraud qualifications concerned beneficiaries registered in Denmark (5
recoveries) and Ireland (4 recoveries). The highest amounts involved per
project in cases qualified as suspected fraud were recorded for a Tanzanian
beneficiary (EUR 462 404) and a German one (EUR 225 260). In each of the
two countries there was only one case of suspected fraud but of a considerable
amount.

11.2.3. 
Method of detection

For each recovery order, the Commission service
that issues the order has to indicate how the irregularity or suspected fraud
has been detected. Six different categories have been pre-defined, two of which
fall under the direct responsibility of the European Commission: On-the-spot
checks and the verification of documents by desk officers and financial
officers responsible for the implementation of the commitment. Table DE5 gives
a breakdown of the recoveries by method of detection.

Table DE 5:     Recoveries
(number and amounts) by method of detection, 2010.

Method of detection || N || % || € 1 000 || % || Average € 1000

Community control[103] / Check on the spot || 525 || 51.4 || 15 504 || 36.0 || 29.5

Community control / Desk check documents || 258 || 25.3 || 11 220 || 26.0 || 43.5

Control by national authorities || 6 || 0.6 || 780 || 1.8 || 130.0

European Court of Auditors || 7 || 0.7 || 204 || 0.5 || 29.2

Independent control (supervising engineers, auditors) || 189 || 18.5 || 11 906 || 27.6 || 63.0

OLAF || 5 || 0.5 || 617 || 1.4 || 123.4

Other || 31 || 3.0 || 2 889 || 6.7 || 93.2

Total || 1 021 || 100 || 43 120 || 100.0 || 42.2

Most of the irregularities or suspected fraud
for which a recovery order was issued, were detected on the basis of ‘Community
controls’: 783 recoveries (77.0%) accounting for EUR 26.7 million (63.1%).
Within the ‘Community controls’ category, on-the-spot checks generated twice as
many recoveries as document checks. The average amount for recoveries is EUR
42 233. Recoveries detected by OLAF and National authorities have a
substantially higher average. Recoveries issued on the basis of OLAF activities
had the value per recovery equal to EUR 123 379 but only account for 1.4%
of the total amount to be recovered.

Table DE6 gives a further breakdown of the
recoveries by method of detection and by qualification. The last column is the
average amount per recovery.

Table DE 6:  Recoveries (number and amount)
by method of detection and by qualification, 2010.

Qualification || Method of detection || N || % || € 1 000 || % || Av. € 1000

Irregularity || Community control / Check on the spot || 524 || 52.4 || 15 467 || 39.2 || 29.5

Community control / Desk check documents || 255 || 25.5 || 10 982 || 27.8 || 43.1

Control by national authorities || 6 || 0.6 || 780 || 2.0 || 130.0

European Court of Auditors || 7 || 0.7 || 204 || 0.5 || 29.2

Independent control (supervising engineers, auditors) || 187 || 18.7 || 9 542 || 24.2 || 51.0

Other || 21 || 2.1 || 2 507 || 6.3 || 119.4

Total of Irregularity || 1 000 || 100 || 39 482 || 100 || 39.5

Suspected fraud || Community control / Check on the spot || 1 || 4.8 || 37 || 1.0 || 37.3

Community control / Desk check documents || 3 || 14.3 || 238 || 6.5 || 79.4

Independent control (supervising engineers, auditors) || 2 || 9.5 || 2 364 || 65.0 || 1181.9

OLAF || 5 || 23.8 || 617 || 17.0 || 123.4

Other || 10 || 47.6 || 382 || 10.5 || 38.2

Total of Suspected fraud || 21 || 100.0 || 3 638 || 100.0 || 173.3

Total || 1 021 || || 43 120 || || 42.2

Table DE6 shows the differences in the method
of detection between irregularities and suspected fraud. 'Checks on the spot’ are
the most common method of detection of recoveries classified as irregularity
for both the number of recoveries and the associated amounts, it constituted
half of all the recoveries and almost 40% of the amounts. The ‘Community
controls’ (both on-the-spot checks as well as document controls) are the most
important method of detection for recoveries classified as irregularity; they account
for almost 80% of the recoveries and 67% of the amounts involved. The other
important detection method is 'Independent control' which leads to detection of
quarter of irregularities by amounts involved.

'Community controls' only account for a modest
percentage of the recoveries where fraud was suspected. . The biggest category
however consists of the "Other" controls, which does not provide a
satisfactory explanation for the method of detection. A further analysis of the
method of detection assigned by the financial officer has been carried out by
examining the information gathered during OLAF's investigation, opened on the
basis of the information provided by the financial officer. This examination
revealed that 'Independent control' account for 6 (29%) recoveries where fraud
is suspected. 'Independent controls' remained the most effective method of
detection as they detected 67.4% of the amounts in suspected fraud recoveries
with the highest averages per recovery. This was mostly due to one big case
worth EUR 2.2 million in which this method of detection was declared. As in the
previous year 'Independent control' seems to be the best way to identify big
cases involving fraudulent actions.

11.2.4. 
Types of irregularity

The Commission services also have to indicate the
type of irregularity that was detected when the recovery order was
issued. The number of categories is relatively high compared to e.g. the method
of detection, and the interpretation of these findings must be done with care
as interpretation problems easily occur with the identification of the correct
type of irregularity. It can not be excluded that the same irregularity is
scored differently by different financial officers or that some of the
categories used in this classification have a small overlap.

Table DE7 presents recoveries by main types of
irregularities.

Table DE 7: Recoveries (number and amount)
by type of irregularity, 2010

Type of irregularity || N || % || € 1 000 || % || Average €1 000

Action not implemented || 28 || 2.7 || 2 518 || 5.8 || 89.9

Action not in accordance with the rules || 389 || 38.1 || 13 703 || 31.8 || 35.2

Action not used for intended purposes || 1 || 0.1 || 91 || 0.2 || 90.7

Advances not correctly reflected || 1 || 0.1 || 901 || 2.1 || 900.7

Beneficiary ineligible || 6 || 0.6 || 175 || 0.4 || 29.2

Calculation error || 71 || 7.0 || 1 669 || 3.9 || 23.5

Deadline not respected || 26 || 2.5 || 317 || 0.7 || 12.2

Expenditure declared not related to the action || 44 || 4.3 || 901 || 2.1 || 20.5

Expenditure not covered by legal base || 168 || 16.5 || 5 212 || 12.1 || 31.0

Falsified documents || 8 || 0.8 || 1 278 || 3.0 || 159.8

Inappropriate accumulation of aid || 3 || 0.3 || 111 || 0.3 || 36.9

Incomplete documents || 24 || 2.4 || 536 || 1.2 || 22.3

Incorrect rates used in calculating the claim || 87 || 8.5 || 3 657 || 8.5 || 42.0

Lack of necessary co-financing || 3 || 0.3 || 63 || 0.1 || 21.2

Missing documents || 102 || 10.0 || 7 259 || 16.8 || 71.2

Not Applicable || 15 || 1.5 || 412 || 1.0 || 27.5

Public procurement procedures not respected || 8 || 0.8 || 193 || 0.4 || 24.1

Quality of action inadequate || 20 || 2.0 || 3 854 || 8.9 || 192.7

Recoverable VAT, interest received not correctly reflected || 17 || 1.7 || 269 || 0.6 || 15.8

Total || 1 021 || 100 || 43 120 || 100 || 42.2

The most common type of recoveries qualified as
irregularities is ‘Action not in accordance with the rules’ (389 recoveries or
38.1%). The qualification 'Expenditure not covered by legal base’ follows with
168 recoveries (16.5%). The third most common type is ‘Missing documents’ (102
recoveries or 10.0%). The fourth most common type of irregularity is ‘Incorrect
rates used in calculating the claim’ (87 recoveries or 8.5%). The four most
frequent types of irregularity amount to around 70% both by number and
irregular amount.

For 155 recoveries, more than one type of
irregularity was indicated. The most frequent pair of identified irregularities
was ‘Recoverable VAT, interest received not correctly reflected' combined with
‘Incorrect rates used in calculating the claim’. This pair of irregularities
occurred in 37 recoveries. The second pair consisted of ‘Calculation error’ and
‘Incorrect rates used in calculating the claim’, which occurred in 28
recoveries. The pair ’Recoverable VAT, interest received not correctly
reflected’ and ’ Calculation error’ occurred in 20 recoveries. The following
table presents the four types of irregularity which most frequently appeared in
cases involving more than one type of irregularity.

Table DE 8:  The most frequently indicated
pairs of irregularity types, 2010

Type of irregularity || Missing Documents || Incorrect rates used in calculating the claim || Calculation error || Recoverable VAT, interest received not correctly reflected

Action not implemented || 4 || 0 || 0 || 0

Action not in accordance with the rules || 16 || 9 || 3 || 4

Calculation error || 8 || 28 || N/A || 20

Copy documents rather than originals || 9 || 2 || 3 || 1

Deadline not respected || 5 || 0 || 2 || 1

Expenditure declared not related to the action || 16 || 5 || 8 || 3

Expenditure not covered by legal base || 14 || 18 || 4 || 7

Inappropriate accumulation of aid || 2 || 1 || 1 || 1

Incomplete Documents || 23 || 5 || 4 || 3

Incorrect rates used in calculating the claim || 18 || N/A || 28 || 37

Missing Documents || N/A || 18 || 8 || 11

Public procurement procedures not respected || 5 || 3 || 1 || 1

Recoverable VAT, interest received not correctly reflected || 11 || 37 || 20 || N/A

The most common modus operandi identified in
parallel with other modus operandi is ‘Missing documents’. It is indicated in
136 recoveries, which represent 74.6% of recoveries with more than one type of
irregularity indicated. The second most frequent modus operandi is
‘Incorrect rates used in calculating the claim’, which occurred in 126 recoveries.

Table DE9 provides an overview of the
recoveries by type of irregularity, broken down by qualification of the
recovery. For recoveries qualified as suspected fraud, only the categories were
reported where the cells were not empty.

Table DE 9:     Recoveries
(number and amount) by type of irregularity and by qualification, 2010

Qualification || Type of irregularity || N || % || € 1 000 || % || Average

Irregularity || Action not implemented || 388 || 38.8 || 13 688 || 34.7 || 35.3

Action not in accordance with the rules || 1 || 0.1 || 91 || 0.2 || 90.7

Action not used for intended purposes || 1 || 0.1 || 901 || 2.3 || 900.7

Advances not correctly reflected || 6 || 0.6 || 175 || 0.4 || 29.2

Beneficiary ineligible || 71 || 7.1 || 1 669 || 4.2 || 23.5

Calculation error || 26 || 2.6 || 317 || 0.8 || 12.2

Deadline not respected || 44 || 4.4 || 901 || 2.3 || 20.5

Expenditure declared not related to the action || 167 || 16.7 || 5 208 || 13.2 || 31.2

Expenditure not covered by legal base || 5 || 0.5 || 642 || 1.6 || 128.4

Falsified documents || 3 || 0.3 || 111 || 0.3 || 36.9

Inappropriate accumulation of aid || 24 || 2.4 || 536 || 1.4 || 22.3

Incomplete Documents || 87 || 8.7 || 3 657 || 9.3 || 42.0

Incorrect rates used in calculating the claim || 3 || 0.3 || 63 || 0.2 || 21.2

Lack of necessary co-financing || 94 || 9.4 || 6 795 || 17.2 || 72.3

Missing Documents || 10 || 1.0 || 330 || 0.8 || 33.0

Not Applicable || 7 || 0.7 || 180 || 0.5 || 25.7

Public procurement procedures not respected || 19 || 1.9 || 1 656 || 4.2 || 87.2

Quality of action inadequate || 17 || 1.7 || 269 || 0.7 || 15.8

Recoverable VAT, interest received not correctly reflected || 388 || 38.8 || 13 688 || 34.7 || 35.3

Total of Irregularity || 1 000 || 100.0 || 39 482 || 100.0 || 39.5

Suspected fraud || Action not implemented || 1 || 4.8 || 225.3 || 6.2 || 225.3

Action not in accordance with the rules || 1 || 4.8 || 15.5 || 0.4 || 15.5

Expenditure not covered by legal base || 1 || 4.8 || 4.9 || 0.1 || 4.9

Falsified documents || 3 || 14.3 || 636.4 || 17.5 || 212.1

Missing Documents || 8 || 38.1 || 464.1 || 12.8 || 58.0

Not Applicable || 5 || 23.8 || 82.2 || 2.3 || 16.4

Public procurement procedures not respected || 1 || 4.8 || 12.5 || 0.3 || 12.5

Quality of action inadequate || 1 || 4.8 || 2 197.7 || 60.4 || 2,197.7

Total of Suspected fraud || 21 || 100.0 || 3 638 || 100.0 || 173.3

Total || 1 021 || || 43 120 || || 42.2

Among the recoveries qualified as irregularities
‘Action not in accordance with the rules’ was the most frequent identified
category (388 recoveries). The next category was ‘Expenditure not covered by
legal base’ (167 recoveries). The four most frequent categories account for
73.6% of the recoveries qualified as irregularity, which shows rather limited
variety in modus operandi used in irregular transactions. It should be observed
that the share of these categories is very similar (74.3%) if the amounts
involved in the recovery are taken into account.

Among the recoveries qualified as suspected
fraud, ‘Missing documents’ is the most frequent types of irregularity (8
recoveries or 38.1%). Second most frequent type of irregularity was qualified
as 'Not applicable', however if one reclassifies the cases depending on the
outcome of the OLAF investigation, the equally frequent modus operandi will be
'Falsified documents' (8 recoveries or 38.1%). In such a case modus operandi
involving documents constitute 76.2% of all modus operandi by number of irregularities.

11.3. 
Specific analysis
11.3.1. 
Irregularity versus Suspected Fraud

Only 2.1% of the 1021 issued recovery orders
were qualified by the Commission services as suspected fraud, but they account
for 8.4% of the amounts involved in the recoveries. Table DE10 provides an
overview of these findings.

Table DE 10:   Recoveries
(number and amounts) by qualification, 2010

Qualification || Commitments || Recoveries

€ 1 000 || % || Average || N || % || €1 000 || % || Average

Irregularity || 6 187 321 || 94.4 || 6 187 || 1000 || 97.9 || 39 482 || 91.6 || 39.5

Suspected fraud || 369 492 || 5.6 || 17 595 || 21 || 2.1 || 3 638 || 8.4 || 173.3

Total || 6 556 813 || 100.0 || 6 422 || 1021 || 100.0 || 43 120 || 100.0 || 42.2

The average irregular amount per recovery is
almost four and a half times higher in suspected fraud recoveries than in
recoveries qualified as irregularity. The average for recoveries qualified as
irregularity is EUR 39 482 compared to EUR 173 258 for recoveries
qualified as suspected fraud. The commitments in which irregularities qualified
as suspected fraud were identified were substantially higher as well. It should
be noted that the financial impact of suspected fraud cases could be revised
following OLAF's investigations.

11.3.2. 
Time delay

Almost half of the irregularities for which a
recovery order was issued in 2010 occurred within one year after the first
payment was made by the Commission. More than 80% of all irregularities are
perpetrated within the first three years from the first payment. The average
time delay between payment and committing an irregularity is 15 months. The
contract value does not play an important role: irregularities in both big and
small contracts appear within the first year from payment. The average delay
between first payment and occurrence of the irregularity, taking account of the
amounts involved, is one year.

For the recovery orders issued in 2010, the
average delay between the irregularity and its detection is 3 years and 2
months. There are a limited number of irregularities that are detected almost
immediately: 6.1% of the irregularities for which a recovery orders were
issued, were detected during the first year after the irregularity was
perpetrated. The percentage of detected irregularities does not change substantially
for the period between 2 and 6 years after the irregularity was committed. This
clearly reflects the project management cycle in the Commission and shows the
systematic way in which the Commission implements its controls. There is no
relationship between the amount of the irregularity and its duration at the
moment of its detection. Taking account of the amounts involved in the weighted
average of time delay it takes 2 years and 10 months, from the moment an
irregularity starts to the moment it is detected.

The chart below presents the recoveries
registered in 2010 by number (line) and amounts (bars) of commitments by a year
in which the commitment was made (e.g.: in 2010, 207 recoveries were registered
in ABAC that were made in 2006. The corresponding amount to be recovered is EUR
7.6 million). For recovery orders issued in 2010 for direct expenditures
commitments, most commitments were made in 2006. During a period between 2004
and 2008 more than 100 commitments were made annually for which a recovery
order was issued in 2010. More than 90% of the recovery orders concerned
commitments which were made between 2003 and 2009. The corresponding amounts
account for almost 85%.

Chart DE 1:    Recoveries in 2010 (number and amounts) by year of
commitment

11.3.3. 
Trends

Following the decrease in number of recoveries
and amounts to be recovered observed in last year's report, recoveries in 2010
came back to the level of 2008. The total number of recorded recoveries
increased in 2010 in comparison to 2009 by 44.8%. The number of recoveries
qualified as suspected fraud rose by 40%. The irregular amounts increased by
56.6%. The main reason for such a sharp increase both in the number of
recoveries and amounts to be recovered is the fact that a
backlog of data encoding and data entry into the ABAC system has been removed.
Half of the recovery orders detected in 2009 were only introduced
in 2010. This has distorted the reporting: If at least half of these recoveries
had been introduced in ABAC in the year of detection, the trend line would have
displayed a smoother slope and a comparable number of recoveries in three
consecutive years could have been observed.

The distribution of irregularities between
internal and external policies follows the share of the amounts committed in
the two policy areas. Internal policies account for 80% of the commitments,
which is reflected in its share of recoveries and corresponding amounts. The
recoveries tend to follow the same pattern as in the previous year. However,
the number of irregularities in the area of external actions slightly decreased
in 2010 while the corresponding amounts increased, bringing both numbers in
line with the shares of 2008. The ratio between an average amount of an
irregularity in external actions and internal policies went back to the 2008
level where irregularities in the external action sector were two times higher
than the one in internal policies.

In line with the previous years, the most
frequent method of detection remains 'Community controls', which account for
more than 70% of the number of recoveries. However, the corresponding amounts
decreased in 2010 to 60% of the total. Within the 'Community controls'
category, the 'on-the-spot' checks became more important: in detecting
irregularities: 51% of recovery orders were generated by this type of controls
and 36% of amount to be recovered. 'Independent controls' became more important
and turned out to be an efficient method of irregularity detection, especially
among cases qualified as suspected fraud.

The average delay between the first payment to
a beneficiary and the detection of an irregularity for recovery orders issued
in 2010 remained at the same level as in 2009. The average duration for the
detection of an irregularity was 4 years and 1 month after the irregularity
occurred. The weighted average duration, which takes accounts of the
corresponding amounts, was with a period of 2 years and 4 months substantially
lower.

11.4. 
Recovery

This paragraph describes the payments
made to the Commission further to the issuing of the recovery orders.
Once a recovery order is issued, the beneficiary has to pay back the undue
payment or the amount is offset from remaining payments. For the recovery
orders issued in 2010, full or partial recovery was recorded in 791 cases
(77.5% of the 1 021 recovery orders), which represents an amount of almost
EUR 25.2 million (58.5% of the amounts to be recovered). In 784 recovery orders
(76.8%) the full amount has already been recovered. However there are still 237
(23.2%) outstanding recovery orders which account for EUR 17.1 million (39.6%).

Table DE 11:   Recoveries in 2010
(number and amount) by payment status and qualification.

Qualification || Recovered || To be Recovered

N || Cashed Amount € 1 000 || N || Open Amount (€ 1 000)

Irregularity || 780 || 22 242 || 226 || 16 453

Suspected fraud || 11 || 2 997 || 11 || 642

Total || 791 || 25 239 || 237 || 17 095

The recovery rate for recoveries qualified as
irregularity is 56.3% and is lower than for cases qualified as suspected fraud
(82.4%). The high rate of the recovery among cases qualified as suspected fraud
is due to the possibility to offset the irregular amount in the biggest case
qualified as suspected fraud. In that case EUR 2.2 million was deducted from
the payments due to the beneficiary.

11.5. 
Conclusions

The analysis of the irregularities detected in
the expenditure managed by the Commission on a centralised direct basis, as
registered in the recovery context of the Commission's financial system ABAC,
is only at its beginning. Taking into consideration its limitations described
in the methodological section as well as the relatively short time the recovery
context functions, the findings in this chapter must be interpreted with care.

Following the rates presented in previous
chapters the respective figures for expenditures managed directly by the
Commission are presented in the table below.

Table DE 12:            Summary table for
2010

Rates in % || 2010 || 2009 || 2008 || Total 2008-10

Irregularity rate - IrR || 0.27 || 0.17 || 0.17 || 0.20

Fraud rate – FrR || 0.02 || 0.01 || 0.02 || 0.02

Fraud frequency level - FFL || 2.06 || 2.13 || 2.04 || 2.07

Fraud amounts level - FAL || 8.44 || 5.39 || 9.31 || 7.93

(1) 
Only a small part of the Commission expenditures
is concerned by irregularities. The recovery orders issued in 2010 relate to
0.27% of the overall amounts paid by the Commission, despite the increase of
this rate in comparison to 2009, the rate remains low. The recovery orders
classified as suspected fraud are lower and affect 0.02% of those payments. The
aggregated amount of the recovery orders issued in 2010 represents 0.6% of the
commitments made by the Commission for internal policies and external actions.

(2) 
The number of recovery orders issued in 2010
increased by 44.8% in comparison to the previous year. The increase is sharp
but it could be explained by the delayed input of the recovery orders detected
in 2009. Without this backlog, the results for 2010 would hardly differ from
those for 2009. The number of cases qualified as suspected fraud increased from
15 in 2009 (2.1% of all recovery orders) to 21 in 2010 (2.1%). The corresponding
amounts increased more rapidly: from EUR 1.5 million in 2009 to EUR 3.6 million
in 2010, but can be explained by an outlier value of EUR 2.2 million for one
suspected fraud recovery.

(3) 
The majority of the irregularities were
committed by a beneficiary residing in one of the Member States. The
beneficiaries registered in the EU committed 91.7% of irregularities, which
corresponds to 88.6% of the irregular amounts. For recovery orders qualified as
suspected fraud in 2010, the share of beneficiaries residing in the EU is
smaller: 16 out of 21 beneficiaries had one of the Member States as their place
of residence.

(4) 
The most successful method of detection is
'Communities controls': almost 76% of the irregularities by numbers and 62% by
corresponding amounts were identified on the basis of 'On-the-spot checks' and
'Desk checks of documents'. 'Independent controls' carried out by e.g.
engineers and external auditors detected 18.5% of the cases but they involved
higher amounts and constitute 27.6% of the amounts to be recovered. This underlines
the need to increase such controls of EU financed projects.

(5) 
The types of irregularity show a large variance.
In recovery orders qualified as irregularity, ‘Action not in accordance with
the rules’ and 'Expenditures not covered by the legal basis' are the most
frequent categories, whereas the type of irregularity most frequently observed
in recovery orders qualified as suspected fraud is ‘Missing documents’. However
if the irregular amounts are compared the most frequent type of irregularity
among suspected fraud cases is ' Quality of action inadequate ' (60.4%).

(6) 
The Commission has already recovered or offset
58.5% of value of the recovery orders issued in 2010. 76.8% recovery orders
issued in 2010 have already been fully recovered.

ANNEXES

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

ANNEX
2 - EVOLUTION OF BUDGET PAYMENT APPROPRIATIONS BY HEADING IN 2010 (IN MILLION
EUR)

ANNEX
3 – NUMBER OF CASES OWNRES AND AMOUNTS – PERIOD 2007-2010 PER MEMBER STATE

ANNEX 4 – OWNRES CASES
PER MEMBER STATE

ANNEX 5 – IMPACT ON CUSTOM PROCEDURE FREE CIRCULATION

YEAR || CASES || IMPACT CASES % OF TOTAL || AMOUNTS ESTABLISHED || IMPACT AMOUNTS ESTABLISHED % OF TOTAL

2006 || 3945 || 64,15% || 248.396.645 || 70,04%

2007 || 4235 || 66,13% || 338.898.382 || 83,71%

2008 || 4223 || 68,51% || 310.764.932 || 82,91%

2009 || 3860 || 74,17% || 299.238.143 || 83,71%

2010 || 3338 || 70,36% || 316.216.749 || 80,51%

ANNEX
6 – TOP 10 CHAPTER HEADINGS

2008 || || 2009 || || 2010

CN || PRODUCT || Amount EUR || Cases || || CN || PRODUCT || Amount EUR || Cases || || CN || PRODUCT || Amount EUR || Cases

85 || TVs and parts etc. || 104.817.207 || 988 || || 85 || TVs and parts etc. || 75.990.712 || 802 || || 85 || TVs and parts etc. || 80.346.014 || 731

24 || Tobacco / cigarettes || 32.818.790 || 462 || || 61 || Clothing || 36.164.933 || 286 || || 84 || Machines || 40.311.988 || 315

61 || Clothing || 30.943.594 || 424 || || 87 || (Parts of) cars / motors || 23.648.795 || 295 || || 17 || Sugar || 35.053.914 || 44

62 || Clothing || 17.705.596 || 464 || || 24 || Tobacco / cigarettes || 23.514.707 || 384 || || 87 || (Parts of) cars / motors || 19.953.600 || 323

87 || (Parts of) cars / motors || 16.342.994 || 389 || || 84 || Machines || 15.909.393 || 366 || || 08 || Vegetables || 18.351.359 || 48

84 || Machines || 15.381.951 || 418 || || 62 || Clothing || 15.835.027 || 347 || || 24 || Tobacco / cigarettes || 17.645.856 || 331

64 || Footwear || 12.579.298 || 260 || || 73 || Articles of iron and steel || 14.616.492 || 252 || || 64 || Footwear || 15.064.661 || 188

02 || Meat || 11.842.608 || 149 || || 29 || Organic chemicals || 14.490.783 || 174 || || 61 || Clothing || 13.761.873 || 238

39 || Plastics || 10.540.617 || 255 || || 64 || Footwear || 13.409.429 || 192 || || 73 || Articles of iron and steel || 12.901.328 || 170

07 || Vegetables || 9.449.676 || 158 || || 16 || Food || 12.028.580 || 79 || || 32 || Paints, lacks etc. || 10.258.646 || 35

ANNEX
7 – GOOD AFFECTED BY FRAUD AND IRREGULARITY – PERIOD 2008-2010

2008 || || 2009 || || 2010

TARIFF CODES || CASES || AMOUNTS EUR || || TARIFF CODES || CASES || AMOUNTS EUR || || TARIFF CODES || CASES || AMOUNTS EUR

85219000 || 125 || 30.517.558 || || 85219000 || 94 || 21.491.555 || || 17019910 || 11 || 28.551.379

24022090 || 397 || 28.340.776 || || 24022090 || 309 || 20.242.796 || || 85219000 || 105 || 27.246.826

85282190 || 26 || 18.318.566 || || 61091000 || 48 || 12.599.243 || || 84148022 || 41 || 24.231.414

85393190 || 101 || 10.605.694 || || 16041416 || 28 || 9.677.039 || || 08030019 || 26 || 17.935.013

61046300 || 3 || 9.674.750 || || 61046300 || 1 || 9.500.000 || || 24022090 || 244 || 12.269.099

02071410 || 60 || 7.520.984 || || 07032000 || 80 || 9.454.102 || || 85393190 || 47 || 9.634.096

07032000 || 116 || 7.411.816 || || 87032410 || 20 || 8.558.340 || || 85287119 || 79 || 9.320.466

85366990 || 22 || 6.156.652 || || 85393190 || 44 || 8.214.566 || || 18061090 || 12 || 8.829.524

28046900 || 6 || 5.565.548 || || 85365080 || 4 || 5.427.349 || || 85285990 || 50 || 8.687.023

96131000 || 21 || 4.803.557 || || 85287119 || 41 || 5.067.445 || || 16041416 || 7 || 8.242.276

61103099 || 60 || 4.428.704 || || 85285990 || 64 || 4.264.182 || || 21069098 || 24 || 6.832.415

24012010 || 11 || 3.766.811 || || 29310095 || 3 || 3.962.877 || || 32159080 || 10 || 6.476.899

85287220 || 6 || 3.613.262 || || 38249091 || 3 || 3.918.718 || || 85258019 || 15 || 5.069.401

61101190 || 12 || 3.512.930 || || 04021019 || 4 || 3.914.753 || || 87120030 || 82 || 4.901.804

39232100 || 69 || 3.040.146 || || 84279000 || 38 || 3.610.700 || || 17019100 || 10 || 4.747.327

85285990 || 49 || 3.016.322 || || 55032000 || 17 || 3.591.001 || || 07032000 || 115 || 4.705.225

83112000 || 1 || 2.765.919 || || 87032319 || 16 || 3.567.730 || || 64029996 || 5 || 3.518.319

87031018 || 20 || 2.564.623 || || 87120030 || 37 || 3.421.543 || || 64039113 || 6 || 3.283.434

17019999 || 2 || 2.376.061 || || 29371200 || 1 || 3.356.160 || || 02071410 || 18 || 3.003.694

02023090 || 22 || 2.216.134 || || 63022100 || 8 || 2.920.612 || || 32041100 || 10 || 2.680.551

84099100 || 5 || 2.214.657 || || 61159399 || 2 || 2.860.760 || || 87032210 || 4 || 2.609.780

85269120 || 20 || 2.137.754 || || 39232100 || 79 || 2.649.569 || || 19059055 || 12 || 2.399.480

15119019 || 3 || 2.130.303 || || 64041990 || 16 || 2.549.098 || || 61091000 || 46 || 2.318.260

85281294 || 18 || 2.089.484 || || 08030019 || 5 || 2.495.501 || || 73079990 || 7 || 2.216.282

62046231 || 27 || 2.027.343 || || 85299092 || 31 || 2.202.341 || || 10061094 || 1 || 2.187.300

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

2008 || || 2009 || || 2010

COUNTRY || EUR || CASES || || COUNTRY || EUR || CASES || || COUNTRY || EUR || CASES

China || 157.814.570 || 1.963 || || China || 147.435.783 || 1.923 || || China || 155.359.915 || 1.779

USA || 39.556.170 || 707 || || USA || 36.717.222 || 550 || || USA || 40.069.576 || 537

Japan || 19.648.993 || 262 || || Japan || 18.505.673 || 223 || || Spain || 27.607.308 || 4

South Korea || 14.943.633 || 110 || || Hong Kong || 17.293.266 || 80 || || Ecuador || 17.020.920 || 26

Brazil || 14.943.626 || 169 || || Vietnam || 10.720.948 || 40 || || Ceuta || 15.409.302 || 31

Bangladesh || 14.383.113 || 187 || || Bangladesh || 10.610.987 || 132 || || Brazil || 14.775.460 || 72

Not specified || 9.730.756 || 608 || || Argentina || 9.742.266 || 39 || || Not specified || 9.024.754 || 466

Switzerland || 7.691.009 || 102 || || Not specified || 9.574.139 || 454 || || Japan || 8.686.977 || 150

Malaysia || 7.218.153 || 65 || || Seychelles and dependencies || 8.255.834 || 2 || || South Korea || 8.601.164 || 115

Russia || 6.833.471 || 133 || || South Korea || 7.073.751 || 94 || || El Salvador || 7.000.732 || 12

ANNEX
8.1: RECOVERY RATE (RR) BREAKDOWN BY ORIGIN OF GOODS 2008-2010

2008 || || 2009 || || 2010

Country || Recovered EUR || RR || || Country || Recovered EUR || RR || || Country || Recovered EUR || RR

China || 75.751.332 || 48% || || China || 66.813.255 || 45% || || China || 53.480.287 || 34%

USA || 28.992.951 || 73% || || USA || 27.286.860 || 74% || || USA || 30.440.824 || 76%

Japan || 18.683.440 || 95% || || Japan || 17.145.471 || 93% || || Spain || 27.677.131 || 100%

South Korea || 10.748.763 || 72% || || Hong Kong || 2.944.101 || 17% || || Ecuador || 19.687 || 0%

Brazil || 6.681.465 || 45% || || Vietnam || 1.851.307 || 17% || || Ceuta || 69.823 || 1%

Bangladesh || 9.360.750 || 65% || || Bangladesh || 3.007.036 || 28% || || Brazil || 4.633.567 || 31%

Not specified || 2.720.644 || 28% || || Argentina || 9.577.499 || 98% || || Not specified || 5.572.569 || 62%

Switzerland || 1.248.901 || 16% || || Not specified || 5.048.257 || 53% || || Japan || 6.530.660 || 75%

Malaysia || 2.104.157 || 29% || || Seychelles and dependencies || 0 || 0% || || South Korea || 4.425.565 || 51%

Russia || 1.920.521 || 28% || || South Korea || 6.497.550 || 92% || || El Salvador || 137.427 || 2%

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

MEMBER STATES || 2008 || 2009 || 2010

CASES || ESTIMATED OR ESTABLISHED AMOUNT OF TOR EUR || CASES || ESTIMATED OR ESTABLISHED AMOUNT OF TOR EUR || CASES || ESTIMATED OR ESTABLISHED AMOUNT OF TOR EUR

AT || 2 || 48.255 € || 1 || 20.227 € || 1 || 72.756 €

BE || 5 || 550.656 € || 4 || 534.665 € || 2 || 44.014 €

DE || 6 || 286.010 € || 5 || 91.420 € || 1 || 257.634 €

DK || 0 || 0 € || 0 || 0 € || 0 || 0 €

ES || 0 || 0 € || 0 || 0 € || 0 || 0 €

EL || 10 || 1.206.270 € || 11 || 2.007.421 € || 16 || 2.693.790 €

FI || 6 || 236.367 € || 4 || 88.151 € || 1 || 63.244 €

FR || 33 || 2.304.549 € || 20 || 989.920 € || 13 || 1.118.612 €

IE || 13 || 2.540.368 € || 11 || 6.822.040 € || 21 || 5.642.987 €

IT || 13 || 1.694.276 € || 16 || 2.426.867 € || 23 || 4.287.095 €

LU || 0 || 0 € || 0 || 0 € || || 0 €

NL || 0 || 0 € || 0 || 0 € || 10 || 741.601 €

PT || 0 || 0 € || 0 || 0 € || 2 || 61.062 €

SE || 3 || 116.014 € || 3 || 80.105 € || 5 || 611.337 €

UK || 153 || 13.140.803 € || 82 || 5.846.358 € || 32 || 1.563.384 €

EU-15 || 244 || 22.123.568 € || 157 || 18.907.174 € || 127 || 17.157.516 €

BG || 2 || 52.543 € || 0 || 0 € || 17 || 1.557.571 €

CY || 0 || 0 € || 0 || 0 € || 0 || 0 €

CZ || 1 || 204.578 € || 0 || 0 € || 0 || 0 €

EE || 0 || 0 € || 0 || 0 € || 0 || 0 €

HU || 4 || 860.456 € || 4 || 416.536 € || 1 || 138.743 €

LT || 3 || 78.624 € || 2 || 115.057 € || 8 || 320.617 €

LV || 4 || 365.572 € || 9 || 490.369 € || 6 || 499.166 €

MT || 0 || 0 € || 1 || 60.912 € || 0 || 0 €

PL || 37 || 1.116.197 € || 31 || 859.859 € || 22 || 1.025.753 €

RO || 16 || 1.134.311 € || 11 || 4.807.318 € || 8 || 2.673.233 €

SI || 4 || 261.035 € || 2 || 96.818 € || 1 || 96.297 €

SK || 0 || 0 € || 0 || 0 € || 0 || 0 €

EU-12 || 71 || 4.073.316 € || 60 || 6.846.869 € || 63 || 6.311.380 €

EU-27 || 315 || 26.196.884 € || 217 || 25.754.043 € || 190 || 23.468.896 €

ANNEX
10 – PERCENTAGE CLASSIFICATION FRAUD PER MEMBER STATE

ANNEX 11
– AMOUNTS INVOLVED IN FRAUD PER MEMBER STATE PERIOD 2008-2010

Member State || 2008 || || 2009 || || 2010

CASES || FRAUD CASES || FRAUD IN EUR || CASES || FRAUD CASES || FRAUD IN EUR || CASES || FRAUD CASES || FRAUD IN EUR

AT || 104 || 25 || 11.300.245 || 168 || 63 || 13.548.224 || 161 || 23 || 4.721.588

BE || 374 || 47 || 3.143.778 || 305 || 48 || 2.256.765 || 201 || 10 || 6.248.081

DE || 1.759 || 230 || 21.214.111 || 1.292 || 84 || 14.540.766 || 1.031 || 103 || 11.693.786

DK || 59 || 6 || 671.103 || 48 || 10 || 2.895.392 || 50 || 11 || 20.134.048

ES || 487 || 218 || 14.900.293 || 496 || 234 || 17.618.297 || 340 || 240 || 64.397.917

FI || 21 || 11 || 651.465 || 30 || 12 || 441.108 || 32 || 5 || 183.111

FR || 316 || 122 || 4.173.648 || 284 || 22 || 23.659 || 248 || 13 || 139.330

GR || 38 || 38 || 1.774.415 || 34 || 32 || 1.966.378 || 43 || 43 || 2.528.574

IE || 54 || 13 || 0 || 55 || 11 || 0 || 37 || 21 || 995.680

IT || 321 || 179 || 18.701.048 || 315 || 182 || 21.806.962 || 350 || 199 || 15.179.075

LU || 1 || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 0

NL || 913 || 101 || 2.455.234 || 746 || 76 || 6.566.523 || 858 || 43 || 2.450.873

PT || 29 || 4 || 1.388.431 || 23 || 4 || 0 || 25 || 10 || 33.600

SE || 71 || 3 || 0 || 67 || 4 || 51.724 || 57 || 9 || 571.904

UK || 1.079 || 145 || 12.728.307 || 801 || 80 || 6.001.044 || 790 || 34 || 1.674.684

EU-15 || 5.626 || 1.142 || 93.102.078 || 4.664 || 862 || 87.716.842 || 4.223 || 764 || 130.952.251

BG || 19 || 15 || 326.188 || 34 || 22 || 838.087 || 50 || 46 || 1.452.171

CY || 14 || 3 || 378.947 || 11 || 2 || 237.313 || 11 || 3 || 183.816

CZ || 65 || 5 || 79.088 || 68 || 3 || 771.746 || 72 || 1 || 13.042

EE || 17 || 1 || 100.592 || 11 || 0 || 0 || 5 || 0 || 0

HU || 71 || 26 || 2.425.654 || 67 || 8 || 1.710.502 || 68 || 5 || 211.087

LT || 64 || 15 || 468.648 || 47 || 14 || 549.890 || 39 || 4 || 214.829

LV || 25 || 0 || 0 || 19 || 1 || 170.476 || 12 || 0 || 0

MT || 3 || 2 || 259.214 || 7 || 7 || 1.762.703 || 2 || 2 || 495.717

PL || 142 || 50 || 1.835.965 || 144 || 39 || 962.973 || 103 || 25 || 1.117.366

RO || 75 || 27 || 1.500.753 || 59 || 15 || 6.324.604 || 101 || 13 || 3.327.675

SI || 26 || 5 || 277.754 || 51 || 23 || 1.201.407 || 44 || 20 || 563.520

SK || 17 || 4 || 126.413 || 22 || 11 || 851.270 || 14 || 0 || 0

EU-12 || 538 || 153 || 7.779.216 || || 540 || 145 || 15.380.971 || || 521 || 119 || 7.579.223

EU-27 || 6.164 || 1.295 || 100.881.294 || || 5.204 || 1.007 || 103.097.813 || || 4.744 || 883 || 138.531.474

Annex 12-Methods
of detection of OWNRES cases – Year 2010

Member State || Recovery Rate || %

Primary inspections || Ex-post controls || Voluntary admission

AT || 16,05 % || 1,44% || 94,56% || 3,99%

BE || 71,27 % || 4,41% || 95,47% || 0,12%

DE || 73,00 % || 8,64% || 76,70% || 14,67%

DK || 13,36 % || 6,32% || 92,49% || 1,19%

ES || 54,55 % || 19,56% || 79,20% || 1,24%

FI || 80,27 % || 49,93% || 24,12% || 25,96%

FR || 48,28 % || 49,54% || 50,46% || 0,00%

EL || 3,08 % || 35,31% || 64,69% || 0,00%

IE || 26,37 % || 0,00% || 88,35% || 11,65%

IT || 11,38 % || 27,23% || 72,57% || 0,20%

NL || 34,25 % || 27,35% || 72,65% || 0,00%

PT || 74,80 % || 7,67% || 88,95% || 3,38%

SE || 88,36 % || 11,64% || 84,42% || 3,94%

UK || 58,12 % || 4,83% || 94,67% || 0,50%

CY || 59,89 % || 3,57% || 96,43% || 0,00%

CZ || 27,40 % || 0,46% || 87,21% || 12,32%

EE || 44,04 % || 16,84% || 83,16% || 0,00%

HU || 39,51 % || 7,78% || 92,22% || 0,00%

LT || 32,79 % || 20,84% || 79,16% || 0,00%

LV || 1,74 % || 39,84% || 59,23% || 0,93%

MT || 0,00 % || 63,61% || 36,39% || 0,00%

PL || 37,46 % || 52,36% || 47,64% || 0,00%

SI || 31,46 % || 40,46% || 59,54% || 0,00%

SK || 83,95 % || 0,00% || 100,00% || 0,00%

BG || 37,33 % || 69,44% || 30,56% || 0,00%

RO || 17,88 % || 28,66% || 71,34% || 0,00%

EU-27 || 45,81 % || 17,91% || 78,25% || 3,84%

ANNEX
13A: AGRICULTURAL EXPENDITURE FINANCIAL YEARS 2006-2010

ANNEX
13B: IRREGULARITIES REPORTED DURING FINANCIAL YEARS 2006-2010

ANNEX
14: COURSE OF CASES IRREGULARITIES REPORTED CONCERNING FINANCIAL YEARS 2004-2005

The
green line reflects reality. It indicates in which year Member States reported
the cases of irregularities concerning the financial years 2004-2005. The
orange line indicates per year the number of cases of irregularities in case
Member States would have reported their cases timely.

ANNEX
15

COHESION
POLICY*

IRREGULARITIES**
COMMUNICATED BY MEMBER STATES 2000-2010***

- The table includes also
irregularities affecting the Cohesion Fund

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

** Data have been updated in relation
to those published in the 2009 report in order to take into account the updates
sent by Member States during the reporting year 2010. Modified values concern
the Years 2007-2009.

ANNEX 16

COHESION FUND*

IRREGULARITIES** COMMUNICATED BY MEMBER STATES 2000-2010

- The
table does not include irregularities related to the programming period
2007-2013

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

ANNEX 17.1

STRUCTURAL FUNDS

REGULATION No 1681/94

IRREGULARITIES RELATED TO THE PROGRAMMING
PERIOD 1994-1999 REPORTED IN 2010

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

b) FINANCIAL VOLUME OF IRREGULARITIES BY FUND AND BY MEMBER STATES

ANNEX 17.2

STRUCTURAL FUNDS

REGULATION No 1681/1994

IRREGULARITIES RELATED TO THE PROGRAMMING
PERIOD 2000-2006 REPORTED IN 2010

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

b) FINANCIAL VOLUME OF IRREGULARITIES BY
FUND AND BY MEMBER STATES

ANNEX 18

STRUCTURAL FUNDS

REGULATION No 1828/2006

IRREGULARITIES RELATED TO THE PROGRAMMING
PERIOD 2007-2013 REPORTED IN 2010

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

b) FINANCIAL VOLUME OF IRREGULARITIES BY
FUND AND BY MEMBER STATES

ANNEX
19

COHESION
FUND

IRREGULARITIES
COMMUNICATED BY MEMBER STATES UNDER REGULATION N. 1831/94 IN 2010

ANNEX
20

CORRECTIONS[104] TO ANNEXES
18.2, 19 AND 20 OF COMMISSION STAFF WORKING PAPER “STATISTICAL EVALUATION OF
IRREGULARITIES” TO THE PIF REPORT 2009

(1) 
CORRECTIONS TO ANNEX 18.2

(a) 
N° OF IRREGULARITIES BY FUND AND BY MEMBER
STATE[105]

(b) 
FINANCIAL VOLUME OF IRREGULARITIES BY
FUND AND BY MEMBER STATES[106]

(2) 
CORRECTIONS TO ANNEX 19

(a) 
N° OF IRREGULARITIES BY FUND AND BY MEMBER
STATE[107]

(b) 
FINANCIAL VOLUME OF IRREGULARITIES BY
FUND AND BY MEMBER STATES[108]

(3) 
CORRECTIONS TO ANNEX 20[109]

ANNEX
21

PRE-ACCESSION
ASSISTANCE

IRREGULARITIES
REPORTED IN 2010

ALL PROGRAMMES

a) PHARE

b) SAPARD

c) ISPA

d) PRE-ACCESSION ASSISTANCE TO TURKEY

e) INSTRUMENT FOR PRE-ACCESSION

ANNEX
22

PRE-ACCESSION
ASSISTANCE

IRREGULARITIES
REPORTED – 2002-2010

ALL PROGRAMMES

a) PHARE

b) SAPARD

c) ISPA

d) TRANSITION FACILITY

e) CARDS

f) PRE-ACCESSION
ASSISTANCE TO TURKEY

ANNEX
23

IRREGULARITIES
REPORTED BY MEMBER STATES IN 2010 – AGRICULTURE, COHESION POLICY, OWN RESOURCES

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

[2]               See for example the Annual Accounts of the European
Union – Financial Year 2009, and in particular note 6 of the Notes to the
financial statements, “Financial corrections and recoveries following the
detection of irregularities”.

http://ec.europa.eu/budget/library/biblio/documents/2009/EU_final_accounts_2009_en.pdf
.

[3]               Official Journal L 248 of 16.09.2002

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

[5]               See in particular for traditional own resources: Article
6(5) of Council Regulation (EC, Euratom) No 1150/2000; for expenditure: Articles
3 and 5 of Council Regulation (EC) No 1848/2006 of 14 December 2006 (OJ L 355,
15.12.2006) for Agriculture; articles 3 and 5 of Commission Regulation (EC) No
1681/94 of 11 July 1994 (OJ L 178 of 12.7.1994), as amended by Regulation (EC)
No 2035/2005 of 12 December 2005 (OJ L 328 of 15.12.2005) for the Structural
Funds until the programming period 2000-2006 included; articles 3 and 5 of
Regulation No 1831/94 of 26 July 1994 (OJ L 191, 27.7.1994), as amended by
Regulation (EC) No 2168/2005 of 23 December 2005 (OJ L 345 of 28.12.2005) for
the Cohesion Fund until the programming period 2000-2006 included; articles 28
and 30 of Commission Regulation (EC) No 1828/2006 of 8 December 2006 (OJ L 371,
27.12.2006) as amended by Commission Regulation (EC) No 846/2009 of 1 September
2009 (OJ L 250, 23.9.2009) for the Cohesion Policy 2007-2013; Articles 55 and
57 of Commission Regulation (EC) No 498/2007 of 26 March 2007 (OJ L 120,
10.5.2007) as amended by Commission Regulation (EC) No 1249/2010 (OJ L 341,
23.12.2010) for the European Fishery Fund (EFF).

[6]               Regulation 1681/94 applies to the Structural Funds,
that is to say European Regional Development Fund (ERDF), European Social Fund
(ESF), European Agriculture Guidance and Guarantee Fund (EAGGF) – Section
Guidance and Financial Instrument for Fisheries Guidance (FIFG). It has been
amended by Regulation No. 2035/2005 of 12 December 2005

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

[8]               Commission
Regulation (EC) No 1828/2006 of 8 December 2006 setting out rules for the
implementation of Council Regulation (EC) No 1083/2006 laying down general
provisions on the European Regional Development Fund, the European Social Fund
and the Cohesion Fund and of Regulation (EC) No 1080/2006 of the European
Parliament and of the Council on the European Regional Development Fund, OJ L
371, 27.12.2006. This repeals Regulations (EC) No 1681/94 and (EC) No 1831/94.
Commission Regulation (EC) No 498/2007 of 26 March 2007 laying down detailed
rules for the implementation of Council Regulation (EC) No 1198/2006 on the
European Fisheries Fund.

[9]               Regulation (EC) No 1080/2006 of the European
Parliament and of the Council of 5 July 2006 on the European Regional
Development Fund and repealing Regulation (EC) No 1783/1999; Regulation (EC) No
1081/2006 of the European Parliament and of the Council of 5 July 2006 on the European
Social Fund and repealing Regulation (EC) No 1784/1999; Council Regulation (EC)
No 1083/2006 of 11 July 2006 laying down general provisions on the European
Regional Development Fund, the European Social Fund and the Cohesion Fund and
repealing Regulation (EC) No 1260/1999; Council Regulation (EC) No 1084/2006 of
11 July 2006 establishing a Cohesion Fund and repealing Regulation (EC) No
1164/94, OJ L 210, 31.7.2006.

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

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

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

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

[14]             The Commission opened a dialogue with the
representatives of the Member States to clarify basic concepts and to re-assure
Member States that the communication of irregularities in no way prejudices the
outcome of criminal judicial proceedings. A working document on the practical
modalities for the communication of irregularities was established in 2002 and
is currently under revision. Discussions are continuing in the Advisory
Committee on the Coordination of Fraud Prevention.

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

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

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

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

[19]             As already mentioned, the same organisation and user
can be “operational” in more than one module. Therefore only sums of users and
organisations per columns are displayed.

[20]             These are mainly customs and agricultural duties but
also include anti-dumping duties and sugar levies.

[21]             Regulation No 1150/2000 of 22 May 2000.

[22]             Regulation No 2028/2004, amending Regulation No
1150/2000.

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

[24]             Thereof, 4 cases were non-admissible as write-off
cases: 3 cases from Finland with a total of EUR 282 307 and 1 case from the UK
with an amount of EUR 155 531.

[25]             Thereof, 4 cases have been considered as
non-admissible: 3 cases from Finland involving EUR 324 270 and 1 case from the
Netherlands with EUR 52 061.

[26]             Case C-392/02 of 15
November 2005. These cases are identified on the basis of Articles
220(2)(b) (administrative errors which could not reasonably have been detected
by the person liable for payment) and 221(3) (time-barring resulting from
Customs’ inactivity) of the Community Customs Code, Articles 869 and 889 of the
Provisions for application of the Code, or on the basis of non-observance by
the customs administration of Articles of the Community Customs Code giving
rise to legitimate expectations on the part of an operator.

[27]             OWNRES is an abbreviation for Own Resources.

[28]             Items registered in OWNRES are not necessarily also in
the B-account. If a debt has been paid or not established (for instance where
goods have been seized and confiscated), the amounts should not be entered in
the B-account.

[29]             The information generated by OWNRES to produce the
figures in this chapter was all obtained from queries made on 4 March 2011. Subsequent
corrections by Spain related to the country of origin Ceuta have been taken
into consideration.

[30]             See annex 1 (table) and annex 2 (chart).

[31]             This percentage will gradually decrease since the
cumulative number of existing cases in OWNRES will exceed the number of new
cases added every new reporting year (last year this percentage was 11%).

[32]             Significant changes in amounts involved generally
relate to one or a few (very) big cases, e.g. Spain: 4 cases totalling to EUR 27
million involving Sugar levies, CN 17 and 1 case of EUR 5 million (CN 16);
Denmark: 1 case of EUR 18 million (CN 84), Italy: 1 case of EUR 7 million (CN
08), Belgium: 1 case of EUR 6 million (CN 85), Czech Republic: 1 case of EUR 6
million (CN 85) and Germany: 1 case of EUR 6 million (CN 32).

[33]             In 2006 the number of cases of belatedly discharged transit
was 1 498, being 24% of the total number of cases registered and 19% of the
total amount initially established. In 2007 there were 1 399 cases (22% of
cases and 16% of the total amount) and in 2008 there were 1 150 cases (19%
of cases and 14% of the amount), in 2009 there were 759 (15% of cases and 13%
of the amount). In 2010 the figures are respectively 908 (19% of cases and 18%
of the amount initially established).

[34]             See annex 3.

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

[36]             Mainly sugar levies (irregularities in relation to the
common organisation of the sugar market).

[37]             See annexes 4 and 5.

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

[39]             See annex 8.

[40]             Information according to the subsequent amendments made
in OWNRES on 22 March 2011 by Spain.

[41]             For the definition of irregularity and fraud, see
paragraph 4.1.1 and 4.1.2(b) respectively.

[42]             See annex 9.

[43]             Belgium (5%), France (5%), Netherlands (5%), United
Kingdom (4%), Czech Republic (1%) and Hungary (7%). No cases were categorised
as fraud in Latvia, Estonia and Slovakia. Luxembourg reported no cases of fraud
and irregularity in 2010.

[44]             Greece (100%), Spain (71%), Bulgaria (92%) and Malta
(100%).

[45]             For details see annex 10. Luxemburg did not register
any OWNRES case in 2010.

[46]             Germany (15%), Finland (26%), Ireland (12 %) and the
Czech Republic (12%).

[47]             See annex 11.

[48]             All those cases from Bulgaria concern smuggling of
cigarettes and other tobacco products.

[49]             See annex 12.

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

[51]             This calculation is based on 62 743 cases, an
established amount of EUR 4.67 billion (after corrections) and a recovered
amount of EUR 2.2 billion.

[52]             See annex 13.

[53]             Belgium (71%), Germany (73%), Finland (80%), Portugal
(75%), Sweden (88%) and Slovakia (84%).

[54]             Approximately 43% of the total 2010-budget was spent in
the agricultural sector.

[55]             Art. 10 Reg. 1848/2006: Without prejudice to Article
11, the Commission may use any information of a general or operational nature
communicated by Member States in accordance with this Regulation to perform
risk analyses, using information technology support, and may, on the basis of
the information obtained, produce reports and develop systems serving to
identify risks more effectively.

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

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

[58]             In the context of the clearance mechanism (see also
point 7.2.3.) Member States are reporting all irregular payments to be
recovered to DG AGRI, without any de minimis threshold.

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

[60]             See for a more in dept explanation paragraph 7.3.1.

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

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

[63]             Commission Decision 2010/258/EU (OJ L 112, 5.5.2010).

[64]             Commission Decision 2010/730/EU (OJ L 315, 1.12.2010)
and Commission Decision 2011/105/EU (OJ L 42, 16.2.2011).

[65]             Commission Implementing Decision 2011/272/EU (OJ L 119,
7.5.2011).

[66]             Table AG6 shows irregularities notified for the
financial years 2006-2010 only, whereas table AG1 provides an overview of
irregularities reported in 2010 but concerning financial years 1990-2010.

[67]             See equation 4-1 in paragraph 4.2.1.

[68]             The irregularity concerns "intervention measures
in the form of public storage" as described in Reg. 884/2006. Cereals were
stored on date A. On date B appeared that x tonnes were missing due to theft
and deterioration. The average market price for the standard quality in Hungary
was on date B significantly higher than the basic intervention price. In such
cases, Reg. 884/2006 requires that the market price has to be reimbursed,
increased by 5%. The differences between the amounts collected by applying the
market price and the amounts booked to the EAGF by applying the intervention
price has then to be credited to the EAGF at the end of the accounting year
among the other elements of credit. Hungary included the costs of intervention,
which also had to be paid back, in the amount to recover. The total amount to
recover (EUR 25 million), therefore, is substantially higher than the total
EAGF-expenditure and led to a different calculation of the Hungarian
irregularity rate. The latter explains the rather high Hungarian irregularity
rate which cannot be compared with the rates of the other Member States.

[69]             The Fraud Rate (FrR) is defined by equation 4-2 in
paragraph 4.2.2.

[70]             IrR, FrR, FAL and FLL are explained in paragraphs 4.2.1
and 4.2.2.

[71]             In next years report, the financial year 2006 will be
used to determine the different rates and levels.

[72]             Annex 14 contains similar charts for 6 specific
sectors.

[73]             PACA
= premier acte de constat administrative ou judiciaire (see art. 2(3) Reg.
1848/2006)

[74]             PACA
= premier acte de constat administrative ou judiciaire (see art. 2(3) Reg.
1848/2006)

[75]             OJ L120, 10.05.2007.

[76]             The four Structural Funds are:

a) 
The European Regional Development Fund (ERDF),
supporting primarily productive investment, infrastructure and development of
SMEs;

b) 
The European Social Fund (ESF), supporting
measures to promote employment (education systems, vocational training and
recruitment aids);

c) 
The Guidance Section of the European
Agricultural Guidance and Guarantee Fund (EAGGF-Guidance), supporting measures
for the adjustment of agricultural structures and rural development;

d) 
The Financial Instrument for Fisheries Guidance
(FIFG), supporting measures for the adjustment of the fisheries sector and the
‘accompanying measures’ of the common fishery policy.

[77]             The finalisation and deployment of module 1828 are
foreseen for the end of September 2011.

[78]             The definition of suspected fraud is explained
in Paragraph 4.1.3.

[79]             The descriptions provided by the Member States of the modus
operandi linked to these communications of irregularity show that falsified
documents or false declarations of certificates were used. Under these
circumstances, the Commission believes that those communications of
irregularities should have been classified as “suspicion of fraud”.

[80]             As data referred to the Cohesion fund are considered
not entirely reliable for this type of estimation, they have been excluded from
this chart. See also footnotes 69 and 70 for more details about data showed on
this chart.

[81]             FFL is defined in paragraph 4.2.2.

[82]             FAL is defined in paragraph 4.2.2.

[83]             It is worth underlying that the two lowest points in
the FFL (2002 and 2010) coincide with the closure of two programming periods.

[84]             The definition of FrR is in paragraph 4.2.1.

[85]             Three general objectives are foreseen for the
programming period 2000-2006:

a) 
Objective 1: promote the
development and structural adjustment of regions whose development is lagging
behind;

b) 
Objective 2: supporting the economic and social
conversion of areas experiencing structural difficulties;

c) 
Objective 3: supporting the adaptation and
modernisation of education, training and employment policies and systems in
regions not eligible under Objective 1.

Furthermore, through the Funds are
also financed the so called “Community Initiatives” , aimed at intervening on
specific aspects such as, for example, stimulating interregional cooperation
(INTERREG); promoting the design and implementation of innovative models of
development for the economic and social regeneration of troubled urban areas
(URBAN).

[86]             The PEACE II programme is designed to consolidate the
peace process in Northern Ireland by channelling finance under Objective 1 of
the Structural Funds in the 2000-06 period. Like its forerunner, PEACE I
(1995-99), the programme seeks to encourage progress towards a peaceful, stable
society and promote reconciliation in the region. The beneficiary areas are
Northern Ireland and the border regions of Ireland.

[87]             Member States continue to report the amounts recovered
also after (partial) programme closure and must return the recovered amounts to
the Commission. The Commission monitors the correctness of the financial
follow-up given by the Member States to pending recoveries.

[88]             In fact, in order to correct detected irregularities,
Member States have two choices: they can choose to either immediately withdraw
irregular expenditure by deducting it from the next payment claim or they can
choose to deduct the irregular expenditure from a future payment claim only
once recovery has been affected from the final beneficiary. This is a choice
left to the Member States’ discretion.

[89]             See paragraph 3.1.2.

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

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

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

[93]             PHARE programme applied to
candidate countries, principally involving institution building measures (and associated investment) as
well as measures designed to promote economic and social cohesion, including cross–border co–operation.

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

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

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

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

d) CAND identifies
candidate countries.

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

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

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

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

[99]             According to article 27(b) of Regulation (EC) No
1828/2006, ‘primary administrative or judicial finding’ means a first written
assessment by a competent authority, either administrative or judicial,
concluding on the basis of specific facts that an irregularity has been
committed, without prejudice to the possibility that this conclusion may
subsequently have to be revised or withdrawn as a result of developments in the
course of the administrative or judicial procedure.

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

[101]            In accordance with Article 53a of the Council Regulation
(EC, Euratom) No 1605/2002 (‘Financial Regulation’) and Commission Regulation
(EC, Euratom) No 2342/2002 (‘Implementing Rules’).

[102]            The financial impact of a case of suspected fraud can
only be determined following the conclusion of an OLAF investigation. It is
only at the end of judicial proceedings (‘res judicata’) that a case can
be qualified as fraud and that the actual amount of fraud can be established.

[103]            The term “Community control” represents one of the
options foreseen in the ‘Recovery context’ of the ABAC system and for this
reason it has been reproduced here and in the following pages literally.

[104]            Modified values are showed in yellow or red and are
related to the Czech Republic (and consequently to the Totals)

[105]            Modified values concern ERDF and TOTAL on the rows ‘CZ’
and ‘TOTAL’

[106]            Modified values concern columns ERDF, ESF and TOTAL on
the rows CZ and TOTAL.

[107]            Modified values concern columns ERDF, ESF and TOTAL on
the rows CZ and TOTAL.

[108]            Modified values concern columns ERDF, ESF and TOTAL on
the rows CZ and TOTAL.

[109]            Modified values concern columns N° OF IRREGULARITIES and
FINANCIAL AMOUNTS on rows CZ and TOTAL.