# EUR-Lex - 52011SA0002 - EN

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# 52011SA0002

**Special Report No 2/2011 ‘Follow-up of Special Report No 1/2005 concerning the management of the European Anti-Fraud Office?’ **

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EXECUTIVE SUMMARY

I. The European Anti-Fraud Office (OLAF) is charged with fighting fraud and other illegal activities detrimental to the EU budget. The Office, which belongs to the Commission but has investigative autonomy, employs in the order of 500 staff, and annual expenditure amounts to some 50 million euro. In 2005 the Court of Auditors’ Special Report No 1/2005 concerning the management of OLAF identified weaknesses in the management of investigations and made 17 recommendations to refocus activities on the investigative function, improve efficiency and demonstrate effectiveness (see paragraphs 1 to 5).

II. OLAF now makes more use of its powers to carry out on-the-spot checks, examine witnesses and question suspects. In order to refocus on the investigative function OLAF created two investigation directorates to replace the one existing previously. However, the Commission considers that OLAF is most effective as an all-round anti-fraud authority rather than a service concentrated on investigations and so did not divest OLAF of its non-investigative activities such as anti-fraud strategy and funding programmes. Consequently, the rate of increase in staff in the investigation directorates (32 %) has not kept pace with growth in the rest of the Office (43 %). In 2009 investigative casework accounted for 37 % of the time of the Office as a whole (see paragraphs 7 to 18).

III. OLAF has taken a number of steps to improve the efficiency of investigations. It has made fuller use of its electronic case management system (CMS), carried out more focused training, introduced targets to focus on more serious and complex cases, reduced the proportion of temporary staff and introduced a Time Management System (TMS). However, the TMS is not used for planning purposes and workplans do not include estimates of the time required and deadlines for investigations. There is a need to improve the management of cases in progress in order to resolve problems faster and avoid long periods of inactivity: the average case duration remains over two years. In addition, OLAF now receives 50 % more initial information on possible frauds and irregularities than in 2004 and the average duration of the initial assessment of this information has doubled from 3,5 months to 7 months. Although there are 32 % more investigators than in 2004, the number of cases under investigation has not increased. This reflects the focus on more serious cases, the increasing proportion of OLAF’s own investigations and the redirection of investigative resources to carrying out initial assessments (see paragraphs 19 to 37).

IV. The legal framework [1] has not changed since the Court’s last report. There is still no independent control of investigative acts in progress, nor is there a code guaranteeing that investigative acts follow a predictable course. A Practical Agreement for cooperation with Eurojust has so far had limited impact (see paragraphs 38 to 44).

V. OLAF sets clear objectives for the Office in its Annual Management Plan. Investigations have resulted in the identification of significant sums for recovery, judicial and disciplinary action, and closure of investigations where initial allegations were shown to be unfounded. Information on OLAF’s performance is available in CMS concerning activity, potential results and real results. However, OLAF does not report this information in a single document which would enable reliable comparisons to be made of its performance over time and across sectors (see paragraphs 45 to 57).

VI. The Supervisory Committee has revised its rules of procedure and has produced a number of reports and opinions concerning the management of OLAF. A procedure has been introduced to consult the Supervisory Committee before forwarding information to national judicial authorities although this does not yet adequately protect the rights of individuals concerned (see paragraphs 58 to 65).

VII. On the basis of these observations the Court’s main recommendations are that OLAF should (see paragraphs 66 to 76):

(a) Increase the number and speed of investigations by increasing the proportion of time spent on them and revising the legal framework.

(b) Improve efficiency by including estimates of resources required and deadlines in plans for investigations. Plans should be monitored and updated. The Executive Board should play a role in ensuring that the overall duration of assessments and investigations is reduced.

(c) Provide reliable information on effectiveness by publishing in a single document performance statistics on activity, potential and real results.

(d) Better define a procedure for consulting the Supervisory Committee before transmitting information to national judicial authorities.

INTRODUCTION

1. In 2005 the Court of Auditors published Special Report No 1/2005 concerning the management of the European Anti-Fraud Office (OLAF) [2]. The audit identified weaknesses in OLAF’s management of investigations and made 17 recommendations to refocus activities on the investigative function, improve efficiency and demonstrate effectiveness. OLAF produced an action plan for the implementation of the accepted recommendations and in 2007 reported on progress to the Audit Progress Committee of the Commission [3]. An outline of OLAF’s role and tasks is set out in Box 1.

2. Figure 1 illustrates the evolution of activity in OLAF since 2004 in terms of expenditure, staffing, information received and cases handled. The number of cases under investigation at any one time has remained at some 400, each lasting on average two years, and in the order of 200 cases are closed each year. The amount of initial information received has increased considerably and OLAF now receives approximately 1000 different communications from various sources each year.

FIGURE 1

OLAF EXPENDITURE, STAFFING AND CASELOAD 2004 TO 2009

+++++ TIFF +++++

Source: OLAF.

BOX 1

OLAF’S ROLE AND TASKS

Key objectives and activities

OLAF was set-up in 1999 [4] with the aim of increasing the effectiveness of the fight against illegal activities detrimental to the Union’s financial interests. OLAF is responsible for a range of activities including carrying out administrative investigations for fighting fraud, assisting Member States in fraud prevention and collecting and analysing information.

OLAF has investigative independence, which is reinforced by a Supervisory Committee made up of five independent persons from outside the EU institutions.

Types of case

The Office divides its cases into the following categories:

(a) Investigations

internal investigations (investigations within the EU institutions and bodies);

external investigations (investigations into economic operators involving EU funds).

(b) Coordination and assistance operations

coordination of Member States in investigations concerning more than one country;

support for national judicial authorities in the context of criminal proceedings.

The key stages of investigations

(a) OLAF receives denunciations from within or outside the EU institutions;

(b) OLAF assesses the initial information and the Director decides whether or not to open a case;

(c) OLAF investigators gather evidence e.g. through interviews and on-the-spot checks;

(d) The investigators report to the Board the results of the investigative activities. The Director decides what follow-up action to initiate, if any. Follow-up action may include transmission of case information to the competent national or EU authorities with a view to launching judicial or disciplinary proceedings or recovering funds;

(e) OLAF verifies whether the responsible authorities have taken the recommended follow-up action.

The outcome of OLAF’s work can take the form of four types of follow-up: financial, administrative, judicial and disciplinary.

STATUS OF RECOMMENDATIONS

3. Table 1 lists the original 17 recommendations made in Special Report No 1/2005. The Court notes that 13 of its recommendations were followed up by OLAF, three others (recommendations 2, 14, 15) were not accepted by the Commission, while recommendation 16 on the role of the Supervisory Committee needs to be seen in the light of a judgment of the Court of First Instance in July 2008 [5].

TABLE 1

STATUS OF ECA RECOMMENDATIONS MADE IN SPECIAL REPORT NO 1/2005 ON OLAF

Note: The recommendations made in Special Report No 1/2005 were not numbered. They are presented here, in summary form, in the order in which they appeared in the report.

Recommendation | Status |

1.Specify results to be achieved by investigations and introduce performance indicators to assess success | Accepted |

2.Consider creating a separate unit dedicated to coordination and assistance operations to improve management of resources | Not accepted |

3.Establish smaller groupings on the Executive Board with the aim of setting clear plans and objectives for investigations | Accepted |

4.Supervise the investigation process to focus on priorities and on the search for evidence by making better use of the investigation means available | Accepted |

5.Introduce a time recording system linked to work plans with estimates of time to be spent on investigations to align workload with resources and to avoid delays | Accepted |

6.Establish a maximum duration for investigations | Partially accepted |

7.Remove follow-up activities (involvement in judicial proceedings and recovery of funds) that can be performed by authorising officers | Partially accepted |

8.Codify and publish procedures to protect the rights of individuals at all stages of the investigation and to provide controls on the legality of the investigative acts in progress | Accepted |

9.Formalise arrangements for cooperation between OLAF and the Member States through legislation or the conclusion of agreements with national investigation services | Accepted |

10.Convert CMS into a system of investigation management and increase training of investigators in investigation techniques, legislation and report-writing skills | Accepted |

11.Produce reliable and relevant reports on performance, based on real rather than potential results | Accepted |

12.Implement a masterplan for personnel management to resolve structural problems | Accepted |

13.Strategic analysis services should seek improvement in the data forwarded by Member States and create databases which can be used to identify anomalies and launch investigations | Accepted |

14.Transfer responsibility for anti-fraud strategy to other Commission services | Not accepted |

15.Give responsibility for managing funding programmes (e.g. Pericles and Hercules) to other Commission services | Not accepted |

16. Clarify the role of the Supervisory Committee to ensure that there is no interference in ongoing investigations | Accepted |

17.Refocus activities on the investigative function, accompanied by changes in governance and regulations | Partially accepted |

AUDIT SCOPE AND APPROACH

4. The follow-up audit set out to establish the action taken to implement the recommendations of Special Report No 1/2005. The audit aimed to answer the following four questions which group together the different recommendations (see Annex I):

(a) Have the activities of OLAF been refocused on its investigative function? (recommendations 2, 7, 13, 14, 15, 17)

(b) Has OLAF improved the efficiency of its investigations? (recommendations 3, 4, 5, 6, 8, 9, 10, 12)

(c) Can OLAF demonstrate the effectiveness of its investigations? (recommendations 1 and 11)

(d) Has the role of the Supervisory Committee been clarified? (recommendation 16).

5. The audit comprised:

(a) an analysis of policy, planning, procedural, staffing and financial documentation and statistics obtained from OLAF including its action plan to address the recommendations of Special Report No 1/2005;

(b) interviews with OLAF Directors, Heads of Unit and investigators; meetings with the OLAF Supervisory Committee and its Secretariat to discuss their reports and opinions; interviews with other relevant bodies (Investigation and Disciplinary Office of the Commission (IDOC), Eurojust);

(c) an assessment of a random selection of 30 investigations out of the 332 internal and external investigations open on 1 July 2008 [6]. The assessment was based on an analysis of the case-related documentation held on the computerised Case Management System (CMS) and interviews with the investigators concerned.

OBSERVATIONS

6. Findings emerging from the examination of the sample of 30 cases are summarised in Figure 2. Each investigation was assessed as strong, satisfactory or weak against the following criteria: the focus on investigative activity, contribution of other OLAF services to the case, timeliness of decisions to open the case, clarity of objectives and planning, proportionate duration, and results achieved. The findings are examined further in the relevant sections of the report.

REFOCUSING ON THE INVESTIGATIVE FUNCTION

7. The Court followed up the recommendations of Special Report No 1/2005 that OLAF should divest or separate certain non-investigative activities and improve the contribution of strategic services to the investigative function. OLAF reorganised its directorates in 2006 and the new organisation structure (see Annex II) was intended to put more focus on OLAF’s investigative function.

FIGURE 2

ASSESSMENT OF CRITERIA IN 30 CASES EXAMINED

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Source: Examination of 30 cases.

NON-INVESTIGATIVE ACTIVITIES HAVE NOT BEEN DIVESTED

8. The Court made four recommendations to divest or separate activities. The recommendation to transfer follow-up activities (recommendation 7) was partially accepted. As the Commission continued to insist on maintaining OLAF as an all-round anti-fraud authority rather than a service concentrated on investigations, the other three recommendations were not accepted: the transfer of responsibility for anti-fraud strategy to other Commission services (recommendation 14); the transfer of responsibility for managing funding programmes to other Commission services (recommendation 15); and the separation of coordination and assistance operations from investigations (recommendation 2).

9. Concerning recommendation 7 to transfer follow-up activities, action has been taken to give primary responsibility to Commission services for follow-up activities7. OLAF remains involved in judicial and disciplinary follow-up (Unit C1, see organisation chart in Annex II) and financial follow-up (Units C2 and C3). OLAF’s role is to optimise conditions for follow-up and to verify whether Commission services and national authorities have taken the necessary measures.

TABLE 2

STAFF DISTRIBUTION 2004–09 [8]

Source: OLAF.

Date | Investigations and operations (directorates A and B) | Other (directorates C and D, Director- General and Supervisory Committee) | Total OLAF | % Investi- gations and operations |

Officials and temporary | Contract staff | Total | Officials and temporary | Contract staff | Total |

end 2004 | 100 | 25 | 125 | 165 | 65 | 230 | 355 | 35,2 % |

end 2005 | 107 | 22 | 129 | 174 | 67 | 241 | 370 | 34,9 % |

end 2006 | 110 | 25 | 135 | 180 | 77 | 257 | 392 | 34,4 % |

end 2007 | 126 | 21 | 147 | 205 | 100 | 305 | 452 | 32,5 % |

end 2008 | 140 | 20 | 160 | 212 | 93 | 305 | 465 | 34,4 % |

end 2009 | 143 | 22 | 165 | 217 | 111 | 328 | 493 | 33,5 % |

10. The proportion of staff working in investigations and operations directorates is on average 34 % (2004–09) as shown in Table 2.

11. Some of the staff in Directorates C (Operational and Policy Support) and D (General Affairs) are also involved in the investigative process. OLAF introduced a Time Management System (TMS) in 2007 which records time spent by all OLAF staff on casework and on other activities [7]. The TMS shows that not all of the time of the staff in investigation directorates is spent on casework. In 2009 they allocated 63 % of their time to casework, 27 % to management and administration and 10 % to policy and resources. Conversely, staff working in other directorates spent 25 % of their time directly supporting casework. The resulting total amount of time spent on casework by staff in all directorates amounts to 37 % as shown in Figure 3 [1008]. Only just over half of this was allocated to specific cases [9].

FIGURE 3

USE OF STAFF TIME RECORDED IN TMS IN 2009

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Source: OLAF Time Management System.

GREATER FOCUS ON INVESTIGATIVE ACTIVITIES

12. The Court recommended that OLAF should refocus on the investigative function accompanied by changes in the regulations while leaving other services with the responsibility for preventive or legislative acts (recommendation 17).

13. In September 2006 two investigations and operations directorates (Directorates A and B) were created to replace the one existing previously (Directorate B). The new organisation (see Annex II) was intended to put more focus on OLAF’s investigative function. The Court’s recommendation to accompany the refocusing on the investigative function with modifications to the governance of the Office through changes in the regulations has not been implemented (see paragraph 38).

14. The examination of a sample of 30 cases indicated an increased focus on investigative activities such as interviews or on-the-spot checks. It also showed the contribution of OLAF services, other than Directorates A and B, which are integrated in the investigative process and provide support when necessary such as the provision of judicial advice and forensic data analysis Figure 2).

15. Another indicator of refocusing is the increase in the proportion of OLAF’s own investigations compared with coordination and assistance cases. The proportion of OLAF’s casework represented by investigations has increased from 50 % in 2004 to 67 % in 2009 (Figure 4).

FIGURE 4

ANALYSIS OF CASES OPENED

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Source: OLAF.

FIGURE 5

SOURCE OF INITIAL INFORMATION RECEIVED 2004–09

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Source: OLAF.

CONTRIBUTION OF STRATEGIC SERVICES TO THE INVESTIGATIVE FUNCTION REMAINS LIMITED

16. The Court recommended that strategic analysis services should aim to identify anomalies which can be used to launch investigations (recommendation 13).

17. OLAF’s strategic intelligence (Units C2 and C3) has improved systems to manage the reliability of data obtained from Member States, concerning, in particular, irregularities in the agricultural and structural funds areas. It now delivers products which are used by the investigation directorates and also by the relevant services in the Commission and in Member States.

18. Strategic intelligence provides general guidance relevant to policy development and operational strategy by identifying risk areas and patterns of fraud. It may also lead to the opening of specific cases [10], either directly or indirectly. Of the 332 investigations open on 1 July 2008, six (i.e. 2 %) were the direct result of strategic intelligence. Figure 5 shows the source of all initial information received from 2004 to 2009, of which 0,7 % came from strategic intelligence.

IMPROVING THE EFFICIENCY OF INVESTIGATIONS

19. The Court followed-up the recommendations of Special Report No 1/2005 which aimed to improve the planning and supervision of investigations and to ensure they were implemented in a timely manner in compliance with a clear legal and procedural framework.

PLANNING DOES NOT INCLUDE MANPOWER AND DEADLINES

20. Concerning planning, the Court recommended that smaller groupings should be established on the Executive Board, consisting of directors and heads of unit, in order to set clear plans and objectives for individual investigations (recommendation 3) and that a time recording system should be introduced linked to work plans with estimates of time to be spent on investigations (recommendation 5).

21. Concerning the recommendation for smaller board groupings, the Board now meets on alternate weeks as Board A and Board B, composed according to the respective competencies of the two new Directorates A and B. This split should have allowed a more thorough analysis of case proposals. However, the Court’s examination of a sample of investigations showed that for one third of cases plans and objectives were still not clear (Figure 2).

22. Concerning recommendation 5, a time management system (TMS) was introduced from October 2007. All OLAF staff, with the exception of Supervisory Committee staff, are required to record the use of their time by tasks. In 2009 over 98 % of all hours available were recorded in the time management system. It is currently a system for recording time. The data in the system is not used to manage casework.

23. The initial assessment of information received (see paragraph 32) includes a workplan which indicates the first steps of the investigation and is reviewed in the nine month report to the Supervisory Committee. Although the workplan indicates the number of investigators and specific skills required there is no estimation of the time required and deadlines. TMS is not used for planning purposes. Outside TMS, Unit B2 (which deals with customs cases) does produce time charts in order to plan the work of investigators. Plans may need to be reassessed once investigative activities are underway because recommendations to open a case are based on the information available at the time and no investigative activities can be carried out during the initial assessment phase [11].

MEASURES TAKEN TO FOCUS ON PRIORITIES

24. The Court recommended that investigations should focus on priorities in order to make the most of the means available (recommendation 4).

25. A de minimis [12] approach has been introduced for external investigations based on indicative financial thresholds [13] and other criteria such as reputational risk, indications of systematic fraud and whether there are other competent investigative bodies.

26. Since 2004 OLAF has grown by 39 % from 355 to 493 staff, whilst the number of staff in the investigations and operations directorates has increased by 32 % from 125 to 165 staff (see Table 2). The increase in the number of staff in the investigations and operations directorates has not been accompanied by an equivalent increase in the number of cases (see Figures 1 and 4). In 2009 OLAF carried out fewer cases per person in investigations and operations than in 2004 (2,8 open cases instead of 3,7). This development reflects:

the focus on more serious complex cases resulting from the de minimis policy;

the increasing proportion of OLAF's own investigations (see Figure 4);

the deployment of more investigative resources to assessing the increasing amount of information received (see Figure 5). The quantity of initial information analysed which did not lead to the opening of a case doubled from 364 such "non-cases" in 2004 (including 108 prima facie non-cases [14]) to 755 in 2009 (including 267 prima facie non-cases).

DURATION OF INVESTIGATIONS HAS NOT IMPROVED

27. The Court recommended that a maximum duration for investigations be established (recommendation 6). The Commission accepted the idea of imposing maximum time limits for conducting investigations and made a legislative proposal [15] to introduce a standard duration of 12 months which was extendable by up to six months at a time on the basis of a decision taken by the Director of the Office after consulting the Supervisory Committee. However, no changes to the legal framework have yet been adopted.

28. OLAF’s Annual Management Plan for 2010 has a minimum target of closing 75 % of cases within 24 months, 10 % of which in less than nine months. Regulation (EC) No 1073/1999 states that where an investigation has been in progress for more than nine months, the Director shall inform the Supervisory Committee of the reasons for which it has not yet been possible to complete it. The duration of investigations is an important issue not only because of the risk of time-barring, but also for the efficiency of OLAF and for persons concerned by such investigations.

29. Duration is monitored through day-to-day supervision by Heads of Units, monthly operational reports and, in Directorate B, case reports drawn up every three months. The Board is only involved at the opening and closing stages of cases. For cases which last longer than nine months the investigator prepares a report for the Supervisory Committee summarising the status of the case, the reasons for the delay and the estimated time for completion. The new manual also requires 18 month reports to be prepared for internal purposes only [16]. No further reporting of this nature is required although most investigations last longer than 18 months. There is a need to improve the management of cases in progress in order to resolve problems faster and avoid long periods of inactivity.

30. Table 3 shows the actual number of cases closed in nine months from 2004 to 2009 is generally just over 10 %, in line with the target in the Annual Management Plan.

31. Although between 2004 and 2009 the number of cases per person in investigations and operations has decreased (see paragraph 26), this has not had an impact on the duration of cases. The average duration of all cases (external and internal investigations, criminal assistance and coordination cases) from 2004 to 2009 has varied little and remains at over two years (25 months) as shown in Figure 6. Many investigations take considerably longer to complete than the average of two years. At the end of 2009, 125 of 457 cases in progress (27 %) had been open for more than two years. Of these, 33 had been open for more than three years and a further 21 for more than four years. The examination of the 30 cases showed that long duration is sometimes due to outside factors, but more often due to internal factors such as lack of resources assigned to cases or shifts in priorities.

TABLE 3

CASES CLOSED IN NINE MONTHS

Source: OLAF.

Year of closure | Total cases closed | Total closed in 9 months | % |

2004 | 339 | 60 | 18 % |

2005 | 233 | 27 | 12 % |

2006 | 217 | 24 | 11 % |

2007 | 232 | 21 | 9 % |

2008 | 187 | 21 | 11 % |

2009 | 188 | 20 | 11 % |

32. The issue of long duration applies not only to investigations but also to initial assessments. When OLAF first receives or generates information concerning a possible fraud, it carries out an evaluation of this initial information to decide whether or not to open a case. The volume of this incoming information has increased considerably from 662 items in 2004 to 965 in 2009 (see Figure 5). The duration of assessments is affected by the need to gather information from outside organisations, the workload of investigators and also the policy to focus on more serious and complex cases (see paragraph 25). Consequently, many evaluations take considerably longer to complete than the two months envisaged in the OLAF manual [17]. The average duration of evaluations has doubled from 3,5 months in 2004 to 7,1 months in 2009. At the end of 2009, 72 cases had been in assessment for more than 12 months, representing 16 % of the total of 459.

33. The results of the Court’s examination of 30 cases (summarised in Figure 2) showed that the decision to open an investigation was not made in a timely manner in 11 cases. The average duration of the evaluations for the 30 cases examined was six months.

FIGURE 6

AVERAGE DURATION OF CASES 2004 TO 2009 [20]

+++++ TIFF +++++

Source: OLAF.

INCREASED SUPPORT FROM CASE MANAGEMENT SYSTEM (CMS) AND PERSONNEL FUNCTION

34. The Court made recommendations to develop the case management system (CMS) as a management tool, to increase training of investigators in investigation techniques, legislation and report-writing skills (recommendation 10) and to implement a masterplan for personnel management in order to resolve structural problems (recommendation 12).

35. CMS is now better used and all key documents are recorded in the system. However, data protection information is not systematically completed. In accordance with Regulation (EC) No 45/2001 [18], a decision should be taken either to inform natural persons that their personal data are stored and treated by OLAF (recorded as "provided" on CMS) or else to defer informing them (recorded as "deferred" on CMS), because, for example, to do so could jeopardise the investigation. However, in five of the 30 investigations examined, a decision whether or not to inform the suspect had not been taken. Furthermore, the Court recalls that the data protection regulation requires personal data to be accurate and, where necessary, kept up to date [19]. In this respect, the Court notes that when an investigation is closed without follow-up and the initial allegations could not be substantiated, the CMS does not reflect such a development in the categorisation of the person concerned. The advice of the European Data Protection Supervisor (EDPS) is needed on the matter.

36. Concerning training, Figure 7 illustrates the number of OLAF staff attending training events on investigation techniques, legislation and report-writing skills since 2004 and shows an increase in the number of participants at training events in 2009. The January 2009 report on training by OLAF’s Internal Audit Capability reinforced the messages of Special Report No 1/2005 and stressed the need to improve the analysis of training needs.

37. Structural problems in staffing have been addressed by obtaining additional permanent posts and thus reducing the number and proportion of temporary staff (see Table 4).

FIGURE 7

TRAINING EVENTS ATTENDED BY OLAF STAFF

+++++ TIFF +++++

Source: OLAF.

TABLE 4

REDUCTION IN PROPORTION OF TEMPORARY POSTS [23]

Source: OLAF.

Year | Permanent posts | Temporary posts | Total posts | % temporary posts |

2004 | 183 | 146 | 329 | 44 % |

2005 | 201 | 146 | 347 | 42 % |

2006 | 238 | 119 | 357 | 33 % |

2007 | 252 | 116 | 368 | 32 % |

2008 | 261 | 116 | 377 | 31 % |

2009 | 270 | 114 | 384 | 30 % |

2010 | 282 | 102 | 384 | 27 % |

REVISION OF THE LEGAL AND PROCEDURAL FRAMEWORK STILL PENDING

38. Regarding the legal and procedural framework, the Court made a recommendation to codify and publish procedures to protect the rights of individuals at all stages of the investigation and to provide controls on the legality of investigative acts in progress (recommendation 8).

39. In December 2009, the Director of OLAF adopted a new Manual of Operational Procedures which was published in May 2010. The legal framework, however, has not changed since the Court’s last report, as the instructions contained in the Manual are not intended to have any legal force [1020] and as Regulation (EC) No 1073/1999 concerning investigations conducted by OLAF has not been amended [21]. There is still no independent control of the legality of investigative acts in progress [22] nor is there a code guaranteeing that investigative acts follow a predictable course, that there is certainty about the timing of hearings and that, at each key stage of the enquiry, the rights to a fair hearing of the person under investigation are protected along with the right of access to the file [1023].

DIFFICULTIES IN COOPERATION WITH EUROJUST AND MEMBER STATES

40. The Court made a recommendation to clarify arrangements for cooperation with Member States’ authorities by adopting a specific regulation or through agreements with national investigation services (recommendation 9).

41. In 2006, the Commission made a revised proposal for a regulation on mutual administrative assistance [24] which has not yet been adopted by Parliament and Council. OLAF has signed administrative cooperation arrangements with authorities in 10 Member States and negotiations are currently underway with four others [25]. However, several Member States have not communicated to OLAF which national authority or investigation service is in charge of cooperation with OLAF in the field of direct expenditure or have not set up the necessary national and judiciary authorities with competences for the field of direct expenditure. Therefore, OLAF continues to encounter difficulties and lack of support when carrying out on-the-spot checks and inspections in certain Member States, notably where national inspectors do not have the control competences referred to in Regulation (Euratom, EC) No 2185/96 [26].

42. The audit confirmed the observations of the Court in its Opinion No 8/2005 that the existing legal framework for combating fraud and irregularities is complicated and difficult to implement and that weaknesses persist in cooperation between the Commission and Member States [27]. The audit also confirmed that given the limitations of OLAF’s powers to investigate, the response of Member States to the Office’s requests remain weak [28].

43. Difficulties may also arise when allegations under investigation by OLAF involve economic operators from several Member States. In such cases, cooperation with Eurojust becomes important, as Eurojust is responsible for coordinating national criminal investigations and prosecution procedures. To make cooperation as efficient as possible, a Practical Agreement on arrangements of cooperation between Eurojust and OLAF was signed on 24 September 2008 [29]. The Practical Agreement requires OLAF to inform Eurojust as soon as possible of the existence of any case where it appears that it directly involves judicial cooperation between the competent national authorities of two or more Member States, or where the case concerns a Member State and the Community. On the basis of the Court’s sample, some 20 % of investigations fall into these categories. Although quarterly meetings take place between OLAF and Eurojust as required by the agreement, practical cooperation in the form of transmission of information on cases has been limited. In 2008 information on five cases was transmitted from OLAF to Eurojust and in 2009 on just one case.

44. Article 85 of the TFEU provides for an extension of the role of Eurojust to initiating investigations. In this regard, the Court notes the recommendations adopted by the European Council in December 2009 on the possibility of furthering the powers of Eurojust national members, reinforcing of the powers of the Eurojust College or the setting-up of a European Public Prosecutor [30]. More effective cooperation between OLAF and Eurojust is necessary in view of developments in this direction.

REPORTING ON THE EFFECTIVENESS OF INVESTIGATIONS

45. The audit assessed whether the action taken by OLAF had resulted in clear objectives for investigations and relevant and reliable reports on performance.

TARGETS ARE SET AND MONITORED BUT DO NOT FOCUS ON RESULTS

46. The Court made a recommendation to specify results to be achieved by investigations and to introduce performance indicators (recommendation 1).

47. For the Office as a whole, certain sectors and geographical areas, OLAF now sets objectives in the Annual Management Plan with clearly quantified targets. These targets are monitored in monthly updates of the Annual Management Plan [31] and further information is provided in monthly management reports [32].

48. Concerning individual investigations, the initial assessment did not systematically identify clear financial objectives for investigations. Although the amounts affected are not always the key concern, the initial assessment of information received should identify the possible financial impact and recovery.

REPORTS ON PERFORMANCE DO NOT FULLY EXPLOIT THE INFORMATION AVAILABLE

49. The Court made a recommendation that reports on OLAF’s performance should be based on relevant and reliable data. They should enable comparisons over time and include indicators based on real results (recommendation 11).

50. OLAF produces the following reports and follow-up documents on performance: annual management plan monthly update, monthly management reports, annual activity report, annual operational report, and ad hoc reports (such as the 2008 report concerning on-the-spot checks).

51. At the end of an investigation, a final case report is submitted to the Board. The Board recommends whether the case should be closed with or without follow-up. Follow-up action includes recovering funds and opening criminal proceedings [33]. The responsibility for follow-up action does not lie with OLAF, but rather with Commission DGs and national authorities. OLAF’s role is to optimise conditions for follow-up and to verify whether action has been taken.

52. Table 5 shows how information is reported in different documents which are produced at different times (monthly, annually or ad hoc) and for different readers (internal or external).

53. It is difficult to form an overview of OLAF’s performance. The information provided is to be found in different documents, which are prepared for different purposes and addressed to different audiences. Additional, more comprehensive information available in CMS is not presented. The Annual Activity Report does not enable the reader to make comparisons of OLAF’s performance over time because there is no summary of key statistics for previous years. The Annual Operational Report provides comparisons with previous years for a number of indicators relating to activity (information received, initial evaluations carried out, opening decisions and average duration of cases), potential results (% of cases closed with follow-up) and real results (funds actually recovered). However, it does not make the important link between OLAF’s activity (number of cases closed in a year) and the ensuing results, both potential (e.g. amounts identified for recovery) and real (e.g. amounts actually recovered).

TABLE 5

AVAILABILITY OF PERFORMANCE INDICATORS

Source: OLAF reports.

| Internal | Public |

Monthly reports | Annual reports | One-off reports |

Annual management plan monthly update | Monthly management reports | Annual activity report | Annual operational report | 2008 report concerning on-the-spot checks |

Ativity

Number of investigations closed | √ | √ | √ | √ | |

Potential results

% of investigations closed with follow-up | √ | | √ | √ | |

Amounts identified for recovery from investigations | | | | | √ |

Stakeholder satisfaction [1001]

Views of Commission DGs | | | | | |

Real results

Actual recovery resulting from investigations | | | | | √ |

Actual recovery resulting from all cases | | √ | | √ | |

54. Relevant indicators are those which measure the link between OLAF’s investigations, its potential results (for example, funds identified for recovery, recommendations to open criminal proceedings) and its real results (for example, funds actually recovered, cases resulting in a penalty or sentence). Although these are largely outside OLAF’s control, they do also depend on the quality and timeliness of OLAF’s investigations.

55. In order to be reliable, indicators should be based on accurate data and presented consistently in order to enable comparisons between years and across sectors (e.g. agriculture, customs, external aid) or types of investigation (internal, external, coordination and assistance).

56. CMS contains information on financial, judicial and disciplinary results. It also records cases closed without follow-up where OLAF has disproved, or been unable to prove, the initial allegations. The type of information which is available in the CMS and which could be reported annually is shown in Annex III. The indicators relate to three dimensions of OLAF outcomes: financial, judicial and outcomes by area or sector. For the financial and judicial outcomes, the tables outline the following:

(a) activity (number of investigations closed);

(b) potential results (investigations closed with follow-up, recommendations to recover funds or open criminal or disciplinary proceedings);

(c) real results (actual amounts recovered or sentences passed).

57. The tables in Annex III complement information available in current reports. They link the real results to the year in which the cases were closed. The information is presented to demonstrate ways in which indicators available in CMS may be reported, enabling reliable comparisons over time and between sectors and types of investigation. With additional analysis and explanation by OLAF, this information may provide a more complete picture of the activity trends and performance in its reports.

CLARIFYING THE ROLE OF THE SUPERVISORY COMMITTEE

58. The Court followed up the recommendation of Special Report No 1/2005 to clarify the role of the Supervisory Committee.

UPDATING PROCEDURES NOT YET COMPLETED

59. The recommendation of the Court, was to clarify the role of the Supervisory Committee to ensure that there was no interference in investigations (recommendation 16).

60. The Supervisory Committee revised its rules of procedure [34] in 2006 and produced a number of reports and opinions concerning the management of OLAF with the aim of reinforcing the independence of the Office.

61. However, a judgment of the Court of First Instance in July 2008 [35] held that an important function of the Supervisory Committee was to protect the rights of persons who are the subject of OLAF investigations [36]. After the judgment was pronounced, a practical working arrangement had to be found to consult the Supervisory Committee before forwarding information to the national judicial authorities.

62. The new manual requires the information to be provided at least five working days before transmission [37]. In June 2010 a new procedure has been agreed between OLAF and the Supervisory Committee to ensure that the letter transmitting cases to national judicial authorities is signed at least five working days after the note informing the Supervisory Committee about the envisaged transmission [38]. OLAF committed itself to take any advice of the Supervisory Committee into account and react on a case-by-case basis.

63. However, in consideration of the decision of the Court of First Instance, this procedure puts at risk the rights of individuals concerned since it does not describe the steps to be taken in the event that the Supervisory Committee decides to issue an opinion. The absence of binding procedures in this regard makes it more difficult to ascertain that the Supervisory Committee has not interfered with the conduct of investigations in progress.

64. Furthermore, OLAF applies a policy of transmitting information to the national authorities without informing the Supervisory Committee where OLAF is aware that a case is already being dealt with by the national judicial authorities. In 2009 OLAF recorded nine such cases where information was transmitted to national authorities without informing the Supervisory Committee in contrast to the position of the Court of First Instance, whereby the obligation to inform the Supervisory Committee is "unconditional and leaves no margin of discretion" [39].

65. The members of the Supervisory Committee are appointed by common accord of the European Parliament, the Council and the Commission (see Article 11 of OLAF regulation). The term of office of the members of the Supervisory Committee is three years and is renewable once. On expiry of their term of office, members shall remain in office until their appointments are renewed or until they are replaced. The members of the current Supervisory Committee took office on 30 November 2005. Their term of office expired on 29 November 2008. The Court notes that more than two years later, a decision to renew their term of office or to replace them is still pending. Such a situation is unsatisfactory.

CONCLUSIONS AND RECOMMENDATIONS

REFOCUSING ON THE INVESTIGATIVE FUNCTION

66. The Court’s previous report made six recommendations to refocus activities on OLAF’s investigative function. Three of these recommendations, concerning the divestment or separation of activities (recommendations 2, 14 and 15), were not accepted, and the other three have been partially implemented (recommendations 7, 17 and 13). Consequently, all six recommendations for OLAF to refocus on its investigative function are still valid.

67. In terms of the allocation of its resources, OLAF has not refocused on its investigative function. The Commission considers OLAF as an all-round anti-fraud authority rather than a service concentrated on investigations. Consequently it did not accept the recommendations of the Court’s previous report to divest activities such as anti-fraud strategy and funding programmes. The number of staff in investigation directorates as a proportion of all staff amounted to 34 % in January 2010. The Time Management System showed that the Office as a whole allocated 37 % of its time to casework in 2009 (see paragraphs 8 to 11).

68. When carrying out investigations, OLAF now makes more use of its investigative powers, for example to carry out on-the-spot checks and interviews. OLAF support services contribute to investigations where appropriate and in 2009 spent 25 % of their time in this way. In this context, the strategic intelligence units identify areas of risk, but their work rarely triggers investigations (see paragraphs 12 to 18).

FOLLOW-UP RECOMMENDATION 1

OLAF should increase the number and speed of investigations by increasing the proportion of time spent on its core investigative function.

FOLLOW-UP RECOMMENDATION 2

The contribution the intelligence units make to investigative work should be enhanced.

IMPROVING THE EFFICIENCY OF INVESTIGATIONS

69. The Court’s previous report made eight recommendations to improve the efficiency of investigations (recommendations 3, 4, 5, 6, 8, 9, 10 and 12). Except for recommendations 3 and 12, the other recommendations are not yet fully implemented and therefore still valid.

70. The Court’s previous report made recommendations to ensure a clear procedural framework for investigations and to improve planning and supervision so that investigations were implemented in a timely and efficient manner. OLAF has taken measures to clarify the procedural framework through the introduction of a new manual in December 2009 and a Practical Agreement for cooperation with Eurojust in 2008. Other measures taken by OLAF to improve efficiency were the introduction of a time management system, the development of a de minimis policy to focus on serious and complex cases, better use of CMS (though it is still not fully used), more focused training, a reduction in temporary staff, and splitting the Board into smaller groupings.

71. Despite the steps taken by OLAF to improve efficiency, progress has been slow and remains incomplete. The new manual was not introduced until December 2009 and the legal framework has not changed since the Court’s last report. Although OLAF entered into an agreement for cooperation with Eurojust, information on only one case was transmitted from OLAF to Eurojust in 2009. Although TMS is used to record time spent, the information it contains is not used to plan and supervise investigations. The volume of initial information to be assessed has increased considerably and the duration of these assessments has doubled. The duration of investigations remains long, sometimes due to outside factors, but more generally due to internal factors such as other priorities or lack of resources (see paragraphs 19 to 44).

FOLLOW-UP RECOMMENDATION 3

The legal framework for combating fraud and irregularities should be revised to simplify and consolidate the anti-fraud legislation. Such an overhaul should address weaknesses in OLAF’s current powers and procedures, in particular concerning cooperation between OLAF and the competent services in Member States.

FOLLOW-UP RECOMMENDATION 4

OLAF should strengthen its cooperation and partnership with Eurojust, which, under Article 85 of the TFEU, is tasked with coordinating criminal investigations and prosecutions relating to offences against the financial interests of the Union. To this end, OLAF should put in place procedures to identify all relevant cases, communicate information on them to Eurojust on a timely basis, and report on the results of its cooperation with Eurojust on a regular basis.

FOLLOW-UP RECOMMENDATION 5

The provisional plans for investigations should include estimates of resources required and deadlines. These plans should be monitored and updated once investigative activities are underway. Information from the Time Management System (TMS) should be used to provide more effective support to investigators and managers.

FOLLOW-UP RECOMMENDATION 6

The overall duration of assessments and investigations should be better controlled to improve the impact of investigations and make better use of resources available. To this end, the Board should play a role in monitoring long and complex investigations, to ensure appropriate action is taken.

REPORTING ON THE EFFECTIVENESS OF INVESTIGATIONS

72. The Court’s previous report made two recommendations concerning the demonstration of the effectiveness of investigations (recommendations 1 and 11). Although these have been partially implemented, the recommendations are still valid.

73. The Annual Management Plan establishes clearly quantified targets for the Office which are regularly monitored. However, clear financial objectives are not systematically identified for individual investigations (see paragraphs 45 to 48).

74. There is considerable information available in CMS which enables OLAF’s performance to be compared over time and across different sectors. These statistics concern activity (investigations closed), potential results (investigations closed with follow-up; recoverable amount) and real results (actual amount recovered). However, the information is not currently reported in a single document which would enable the reader to assess OLAF’s performance. The 696 external investigations closed in the period 2004 to 2009 identified 656 million euros for recovery, of which 180 million euros had actually been recovered at the time of the audit in April 2010 (see paragraphs 49 to 57).

FOLLOW-UP RECOMMENDATION 7

Clear objectives for individual investigations should be systematically set and updated, and results should be reported in terms of objectives achieved.

FOLLOW-UP RECOMMENDATION 8

CMS should be used more extensively in management decision-making and to produce better reports. Performance statistics on OLAF’s activity, potential and real results should be made available in a single report, including comparisons over time.

CLARIFYING THE ROLE OF THE SUPERVISORY COMMITTEE

75. The Court’s previous report made one recommendation to clarify the role of the Supervisory Committee (recommendation 16). Some action has been taken, but implementation remains incomplete.

76. Following the July 2008 judgment of the Court of First Instance, OLAF applies a new procedure to consult the Supervisory Committee before transmitting information to national judicial authorities. However, this procedure does not define the steps to be taken if the Supervisory Committee decides to issue an opinion. Apart from case law, the legal framework to protect the rights of persons being investigated has not changed since the Court’s last report (see paragraphs 58 to 65).

FOLLOW-UP RECOMMENDATION 9

In agreement with OLAF, the Supervisory Committee should define a formal procedure to outline the steps to be taken if it decides to issue an opinion on a case on which it is consulted. The legal framework should be revised in order better to protect the rights of persons being investigated.

This Report was adopted by Chamber IV, headed by Mr Igors LUDBORŽS, Member of the Court of Auditors, in Luxembourg at its meeting of 8 February 2011.

For the Court of Auditors

+++++ TIFF +++++

Vítor Manuel da Silva Caldeira

President

[1] Regulation (EC) No 1073/1999 of the European Parliament and of the Council of 25 May 1999 concerning investigations conducted by the European Anti-Fraud Office (OLAF) (OJ L 136, 31.5.1999, p. 1).

[2] OJ C 202, 18.8.2005, p. 1.

[3] Audit Progress Committee meeting on 5 July 2007 - Progress report by OLAF on the implementation of the recommendations of the Court of Auditors’ Special Report No 1/2005.

[4] Commission Decision 1999/352/EC, ECSC, Euratom (OJ L 136, 31.5.1999, p. 20); Regulation (EC) No 1073/1999.

[5] Case T-48/05 of 8 July 2008 (OJ C 209, 15.8.2008, p. 44).

[6] The audit selected cases which were open on 1 July 2008 in order to review all stages of the procedure up to April 2010 (initial assessment, active investigation, final decision and follow-up where applicable).

[8] The table shows the actual number of staff employed.

[7] In 2009 over 98 % of all hours available were recorded in the time management system.

[1008] The workload of staff in the investigation directorates also covers assessments and co-ordination and assistance cases.

[9] An investigator or Head of Unit working on a large number of cases would allocate time to casework without indicating specific cases.

[10] OLAF Manual of Operational Procedures, 1 December 2009 section 3.1.9.

[11] OLAF Manual 1 December 2009 section 3.2.1. However, in two cases from the Court’s sample, investigative activities started following a board recommendation but before a formal decision to open a case had been taken by the Director. In one of these cases all investigative steps had been completed before the decision to open an investigation was taken.

[12] An abbreviated form of the Latin maxim de minimis non curat lex, "the law cares not for small things." The Convention on the protection of the European Communities’ financial interests (OJ C 316, 27.11.1995, p. 49) stipulates that, for the purpose of criminal prosecution, fraud involving an amount exceeding 50000 euro shall be considered in any event as serious fraud.

[13] 1 million euro in the customs, cigarettes and trade sectors; 100000 euro in the agriculture and structural funds sectors; 50000 euro in direct expenditure and external aid cases. (See page 5 of the Annual Activity Report of OLAF for 2009 — http://ec.europa.eu/atwork/synthesis/aar/doc/olaf_aar.pdf)

[14] Prima facie non-cases relate to information received which clearly does not fall within the competence of OLAF or clearly does not justify the use of OLAF resources.

[15] See COM(2004) 103 final, proposed new Article 6(7) p. 10.

[16] OLAF Manual of Operational Procedures 1 December 2009 Section 1.4.7 states: "If the case is still ongoing nine months after being opened, the investigator prepares a report for the Supervisory Committee summarising the allegations, the status of the case and the reasons for the delay and the estimated time for completion. Another report following a similar internal procedure must be prepared for the management 18 months after the opening of the investigation."

[17] Section 3.2.2 of the OLAF manual states that the initial assessment of a case should be completed within two months of receiving the initial information. If this is not possible, the investigator must request an extension to the deadline from the responsible Head of Unit. The initial assessment must then be completed within a period authorised by the responsible Head of Unit, which shall not be more than six months after receipt of the initial information. If the information required for completing the assessment is still not available after six months a prolongation has to be authorised by the line Director.

[20] Based on the ratio of cases open at the end of the year to cases opened during the year.

[18] Regulation (EC) No 45/2001 of the European Parliament and of the Council of 18 December 2000 on the protection of individuals with regard to the processing of personal data by the Community institutions and bodies and on the free movement of such data (OJ L 8, 12.1.2001, p. 1).

[19] Article 4(1) of Regulation (EC) No 45/2001.

[23] In addition to the establishment of 384 posts there were also 131 contract staff in March 2010, including 65 working in Information Services in Directorate D.

[1020] See the foreword to the Manual which is available on OLAF’s website.

[21] The Commission proposal (COM(2006) 244 final of 24.5.2006) for amending Regulation (EC) No 1073/1999 has not yet been adopted. On this proposal, the Court issued Opinion No 7/2006 (OJ C 8, 12.1.2007, p. 1).

[22] See paragraph 83 of SR No 1/2005.

[1023] Opinion No 5/2010 of the OLAF Supervisory Committee on the respect for fundamental rights and procedural guarantees in investigations.

[24] COM(2006) 473 final of 14.9.2006.

[25] Arrangements are in place with authorities in the following Member States: Belgium, Bulgaria, Czech Republic, Estonia, Spain, Italy, Lithuania, Malta, Romania, Slovak Republic. Negotiations are ongoing with authorities in Denmark, Latvia, Germany and the United Kingdom.

[26] Council Regulation (Euratom, EC) No 2185/96 of 11 November 1996 concerning on-the-spot checks and inspections carried out by the Commission in order to protect the European Communities’ financial interests against fraud and other irregularities (OJ L 292, 15.11.1996, p. 2).

[27] See paragraphs 34–36 of Opinion No 8/2005 (OJ C 313, 9.12.2005, p. 1)

[28] See paragraph 15 of SR No 1/2005.

[29] OJ C 314, 9.12.2008, p. 3.

[30] See Stockholm Programme adopted by the European Council in December 2009 Council document 17024/09, p. 24.

[31] The monthly updates of the annual management plan show the percentage of cases opened in certain sectors and geographical areas, follow-up cases with an impact over certain amounts, percentage of cases closed with follow-up, clearance rate (cases opened/cases closed), percentage of cases closed in a certain time and number of cases per investigator.

[32] Monthly management reports show results for the current year to date and four previous years in terms of prison sentences and amounts recovered and also show the duration of assessments, investigations and follow-up.

[33] The OLAF Manual identifies four kinds of follow-up: administrative, financial, judicial and disciplinary.

[1001] In 2007 OLAF launched a user satisfaction survey which was unsuccessful due to the low response rate (only six replies were received to the 45 questionnaires sent). OLAF has introduced operational conferences with Commission DGs.

[34] Rules of Procedure of the OLAF Supervisory Committee, 24 August 2006 (OJ L 33, 7.2.2007, p. 7).

[35] Case T-48/05 of 8 July 2008.

[36] The judgment of the Court further stipulates that "it cannot be disputed that the requirement to consult that committee before forwarding information to the national judicial authorities is intended to confer rights on the persons concerned" (para 168).

[37] OLAF Manual of Operational Procedures, 1 December 2009, Sections 3.3.6.1.1 and 3.4.3.2.1.

[38] OLAF also provides the Committee with a summary note indicating whether the person concerned has been informed and been given the right to reply and whether the case is within the time limits set by the national authorities.

[39] The decision stipulates "that the Committee must be informed before the information is forwarded to the national judicial authorities" (paragraph 164) and "that the obligation to inform the Supervisory Committee is unconditional and leaves no margin of discretion" (paragraph 170).

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ANNEX I

STATUS OF IMPLEMENTATION OF RECOMMENDATIONS (SPECIAL REPORT No1/2005) [1]

Recommendations | Accepted | Implemented [2] |

Recommendations to refocus activities on OLAF’s investigative function

Divest or separate non-core activities

7.Remove follow-up activities (involvement in judicial proceedings and recovery of funds) that can be performed by authorising officers | Partially | Partially |

14.Transfer responsibility for anti-fraud strategy to other Commission services | Not accepted | No |

15.Give responsibility for managing funding programmes (e.g. Pericles and Hercules) to other Commission services | Not accepted | No |

2.Consider creating a separate unit dedicated to coordination and assistance operations to improve management of resources | Not accepted | No |

Improve contribution of strategic services to the investigative function

17.Refocus activities on the investigative function, accompanied by changes in governance and regulations | Partially | Partially |

13.Strategic analysis services should seek improvement in the data forwarded by Member States and create databases which can be used to identify anomalies and launch investigations | Accepted | Partially |

Recommendations to improve the efficiency of investigations

Legal and procedural framework

8.Codify and publish procedures to protect the rights of individuals at all stages of the investigation and to provide controls on the legality of the investigative acts in progress | Accepted | Partially |

Cooperation with Member States

9.Formalise arrangements for cooperation between OLAF and the Member States through legislation or the conclusion of agreements with national investigation services | Accepted | Partially |

Planning

3.Establish smaller groupings on the Executive Board with the aim of setting clear plans and objectives for investigations | Accepted | Yes |

5.Introduce a time recording system linked to work plans with estimates of time to be spent on investigations to align workload with resources and to avoid delays | Accepted | Partially |

Focus on priorities

4.Supervise the investigation process to focus on priorities and on the search for evidence by making better use of the investigation means available | Accepted | Partially |

Timely completion

6.Establish a maximum duration for investigations | Partially [3] | Partially [4] |

Support from IT systems and personnel function

10.Convert CMS into a true system of investigation management and increase training of investigators in investigation techniques, legislation and report-writing skills | Accepted | Partially |

12.Implement a masterplan for personnel management to resolve structural problems | Accepted | Yes |

Recommendations to demonstrate the effectiveness of investigations

1.Specify results to be achieved by investigations and introduce performance indicators to assess success | Accepted | Partially |

11.Produce reliable and relevant reports on performance, based on real rather than potential results | Accepted | Partially |

Recommendation for the Supervisory Committee to reinforce OLAF’s independence

16.Clarify the role of the Supervisory Committee to ensure that there is no interference in ongoing investigations | Accepted | Partially |

[1] The recommendations made in Special Report No 1/2005 were not numbered. They are numbered here according to the order they appeared in the report.

[2] Yes – recommendation implemented; No – recommendation not implemented and still valid; Partially – varying degrees of implementation and further action recommended.

[3] The Commission replied that it proposed to amend Regulation (EC) No 1073/1999 and introduce a duration of 12 months with the possibility of extending investigations by up to six months at a time.

[4] The legal framework has not yet been amended.

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ANNEX II

OLAF ORGANISATION CHART [1]

+++++ TIFF +++++

[1] In coordination and assistance cases national judicial authorities have already taken a decision to deal with a case which explains the higher success rate of these cases.

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ANNEX III

POTENTIAL INDICATORS

TABLE A — Indicators of activity, potential and real financial results [1]

Source: OLAF as at April 2010.

| 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | Total |

External investigations | Activity |

External investigations closed | 151 | 104 | 100 | 117 | 121 | 103 | 696 |

Potential results |

With financial follow-up | 59 | 52 | 60 | 66 | 67 | 52 | 356 |

Recoverable amount (million euro) | 183,7 | 43,8 | 54,7 | 122,6 | 121,0 | 130,6 | 656,4 |

Real results |

Amount recovered (million euro) | 73,0 | 8,8 | 9,2 | 43,8 | 28,3 | 16,6 | 179,7 |

Amount written off (million euro) | 5,7 | 0,3 | 1,9 | 1,8 | 0,0 | 15,4 | 25,1 |

Amount outstanding (million euro) | 105,0 | 34,7 | 43,6 | 77,0 | 92,7 | 98,6 | 451,6 |

Table A shows CMS data on external investigations concerning activity (number of investigations closed), potential results (closed with follow-up and amounts identified for recovery) and real results (actual recovery).

Over the six year period between 2004 and 2009, of the 696 external investigations closed, 356 (51 %) cases involved potential financial follow-up.

Over the same six year period the total amount identified for recovery was 656,4 million euro. The total actual amount recovered (over the same six years) up to the time of the audit in April 2010 was 179,7 million euro (27 %).

TABLE B — Indicators of activity, potential and real judicial results

Source: OLAF as at April 2010 (One case may lead to a number of actions and subsequent penalties and sentences).

| Year of follow-up recommendation | Total |

2004 | 2005 | 2006 | 2007 | 2008 | 2009 |

External investigations | Activity |

Investigations closed | 151 | 104 | 100 | 117 | 121 | 103 | 696 |

Potential results |

With judicial follow-up | 33 | 46 | 32 | 42 | 55 | 32 | 240 |

Related actions | 112 | 91 | 48 | 67 | 66 | 22 | 406 |

Real results |

Cases dismissed | 63 | 24 | 17 | 11 | 9 | 0 | 124 |

Cases outstanding | 26 | 55 | 28 | 51 | 57 | 16 | 233 |

Penalty or sentence | 23 | 12 | 3 | 5 | 0 | 6 | 49 |

Internal investigations | Investigations closed | 39 | 30 | 31 | 34 | 25 | 37 | 196 |

Penalty or sentence | 1 | 2 | 2 | 0 | 0 | 0 | 5 |

Coordination and assistance | Cases closed | 149 | 99 | 86 | 81 | 41 | 48 | 504 |

Penalty or sentence | 182 | 63 | 17 | 39 | 19 | 2 | 322 |

Total all cases | Cases closed | 339 | 233 | 217 | 232 | 187 | 188 | 1396 |

Penalty or sentence | 206 | 77 | 22 | 44 | 19 | 8 | 376 |

Internal investigations | Disciplinary actions triggered | 8 | 12 | 13 | 19 | 12 | 1 | 65 |

Table B shows CMS data on activity, potential and real results in the judicial sphere. Over the six year period between 2004 and 2009, the following observations can be made:

External Investigations: out of the 696 external investigations closed, 240 (34 %) have been with judicial follow-up, leading to 406 related actions. Of these, 49 (12 %) have resulted in judicial decisions (including four acquittals and 11 rulings under appeal), 124 actions (30 %) have been dismissed while the results of 233 actions remain outstanding. Of the 124 cases dismissed, 76 (61 %) were due to lack of evidence whilst nine (7 %) were due to prescription.

Internal investigations: the number of final rulings by judicial authorities in respect of internal investigations is extremely limited, amounting to five rulings for a total of 196 cases closed with 45 judicial paths opened and 62 related actions, 16 of which were dismissed. Internal investigations closed during the period also triggered disciplinary proceedings against 65 persons.

Coordination and assistance cases: these are considerably more successful than internal and external investigations in terms of achieving final rulings by judicial authorities for cases closed with follow-up during the period 2004 to 2009 [1001].

The table shows how judicial results vary between the different categories of cases. Judicial follow-up takes on average 3,5 years to complete, which explains in part why the number of penalties or sentences are lower in recent years.

TABLE C — Financial results in different areas

Source: OLAF as at April 2010.

| Cases closed 2004–09 | Closed with financial follow-up | Recover-able(million euro) | Recovered to date | Recovery per case closed with financial follow-up(million euro) |

(million euro) | % |

External Investigations | Agriculture | 92 | 49 | 136,8 | 5,5 | 1,7 % | 0,11 |

Customs | 102 | 69 | 306,6 | 112,9 | 35,4 % | 1,64 |

External Aid | 225 | 101 | 74,9 | 10,9 | 3,4 % | 0,11 |

Structural Funds | 124 | 76 | 124,2 | 46,6 | 14,6 % | 0,61 |

Other [3] | 153 | 61 | 13,9 | 3,8 | 1,2 % | 0,06 |

Sub total | 696 | 356 | 656,4 | 179,7 | 56,4 % | 0,50 |

Internal investigations | 196 | 33 | 3,0 | 0,5 | 0,2 % | 0,02 |

Coordination and assistance | 504 | 201 | 877,0 | 138,3 | 43,4 % | 0,69 |

Total | 1396 | 590 | 1536,4 | 318,5 | 100,0 % | 0,54 |

Table C compares financial results in different sectors. For external investigations, the customs area represented the highest proportion of recoverable amounts (20 %) and of actual recoveries (35 %). The financial results from other areas were lower.

Over the six year period (2004 to 2009), coordination and assistance cases account for 57 % (877 million euro out of 1536 million euro) of potentially recoverable amounts for the Office as a whole, and 43 % (138 million euro out of 319 million euro) of actual recoveries.

The recovery per investigation shows the average amount recovered per case closed with financial follow-up in each sector (for example in the case of agriculture, 5,5 million euro was recovered, from a total of 49 cases, resulting in an average recovery per case of 0,11 million euro).

Whilst the different sectors are not directly comparable because they manage different types of cases, the table shows the variation in average amounts recovered per case, across sectors.

[1] The financial amounts in the table are attributed to the year in which follow-up commenced regardless of the year in which the money was actually received. The table therefore does not show amounts recovered relating to cases closed in 2003.

[1001] In coordination and assistance cases national judicial authorities have already taken a decision to deal with a case which explains the higher success rate of these cases.

[3] Other consists of direct expenditure, EU bodies and agencies and trade.

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