EN

(...PICT...)|EUROPEAN COMMISSION|

Brussels, 14.7.2010

SEC(2010) 898 final

COMMISSION STAFF WORKING DOCUMENT

Statistical Evaluation of Irregularities- Own Resources, Agriculture, Cohesion Policy, Pre-Accession Funds and Direct Expenditure -Year 2009 Accompanying document to the Report from the Commission on the protection of the European Communities’ financial interests and the fight against fraud – 2009

{SEC(2010) 897} {COM(2010) 382}

COMMISSION STAFF WORKING DOCUMENT

Statistical Evaluation of Irregularities- Own Resources, Agriculture, Cohesion Policy, Pre-Accession Funds and Direct Expenditure -Year 2009 Accompanying document to the Report from the Commission on the protection of the European Communities’ financial interests and the fight against fraud – 2009

TABLE OF CONTENTS

PART I - INTRODUCTION 6

1. INTRODUCTION 6

1.1. Structure of the document 6

1.2. Definitions 6

1.2.1. Irregularity 6

1.2.2. Fraud 6

1.2.3. Suspected fraud 7

1.2.4. Irregularity and Fraud Rates 8

1.2.5. Fraud Frequency and Fraud Amounts Levels 8

2. The European Union Budget 9

2.1. Revenues 9

2.2. Expenditure 10

2.3. Management of the Budget and Legal Framework for the Reporting of irregularities 11

3. The Legal Framework for Irregularities Reporting and the Reporting Systems 12

3.1. The Legal Framework 12

3.2. The irregularity reporting systems 13

3.2.1. Own Resources 13

3.2.2. Irregularity Management System 13

3.3. Implementation of the Reporting Obligation 14

PART II - REVENUES 16

4. TRADITIONAL OWN RESOURCES (ANNEXES 3-13) 16

4.1. Management of Traditional Own Resources (TOR) 16

4.1.1. Monitoring of establishment and recovery of TOR 16

4.1.2. Procedure for managing Member States’ reports for write-off 17

4.1.3. Particular cases of Member State failure to recover TOR 18

4.2. Reporting discipline 18

4.2.1. Year of discovery versus year reported 19

4.3. General trends 19

4.3.1. Types of irregularity and fraud 20

4.3.2. TOR and cigarettes 21

4.3.3. Data main sectors TOR 21

4.4. Recovery 21

4.4.1. Recovery rate 22

4.5. Detection of fraud and irregularities 22

4.5.1. Member States' control systems 24

4.6. Conclusions 26

PART II - EXPENDITURE 28

5. AGRICULTURAL EXPENDITURE (Annexes 14-15) 28

5.1. Introduction 28

5.2. Reporting discipline 30

5.3. General trends 34

5.3.1. Irregularities in perspective – cases reported in 2009 34

5.3.2. Impact on the budget – cases reported for the financial years 2006 - 2009 37

5.3.3. Impact on the budget – overview per budget chapter financial years 2006 - 2009 39

5.3.4. Financial follow up of irregularity cases 41

5.3.4.1. Method of detection – Controls by national authorities 41

5.3.4.2. Method of detection - Controls by the Commission 42

5.3.4.3. Recovery 43

5.4. Specific analysis 45

5.4.1. Introduction 45

5.4.2. Sector 050203: direct payments for arable crops 46

5.4.3. Sector 050302: beef and veal 47

5.4.4. Sector 050401: rural development 49

5.4.5. Other sectors: fraud rates 50

5.4.6. Patchy reporting 50

5.4.7. summary: 2004- rates and levels 53

5.5. Conclusions 54

6. European Fisheries Fund 56

7. COHESION POLICY (Annexes 16-20) 57

7.1. Reporting Discipline 57

7.2. General Trends 59

7.2.1. Yearly trends 59

7.2.2. Irregularities reported in 2009 61

7.2.3. Detection methods 62

7.2.4. Types of irregularity 63

7.2.5. Suspected frauds 64

7.3. Specific analysis – Irregularities related to the programming period 2000-2006 66

7.3.1. Irregularities affecting the different funds 68

7.3.2. Irregularities by Objective 69

7.3.3. Irregularities by Member State 71

7.3.4. Suspected frauds 73

7.3.5. Preventive action and Recovery 76

7.3.6. Cohesion Fund 78

7.4. Conclusions 79

8. Pre-accession funds (Annexes 21-23) 81

8.1. General overview 82

8.2. IMS and reporting discipline 82

8.3. General Trends 83

8.3.1. Overall trend 83

8.3.2. Trend related to Member States and Candidate countries 2009 83

8.3.3. Irregularities affecting different funds 83

8.3.4. Amounts involved 83

8.3.5. Impact on the budget and irregularity rate 83

8.3.6. Method of detection 83

8.3.7. Types of irregularities 83

8.4. Specific analysis 83

8.4.1. Suspected fraud 83

8.4.2. Recovery 83

8.5. Conclusions 83

9. DIRECT EXPENDITURE – CENTRALISED DIRECT MANAGEMENT 83

9.1. Methodology and scope 83

9.2. General analysis 83

9.2.1. Financial amounts involved 83

9.2.2. Financial amounts involved by geographical area and Member State 83

9.2.3. Method of detection 83

9.2.4. Types of irregularity 83

9.3. Specific analysis 83

9.3.1. Irregularity versus Suspected Fraud 83

9.3.2. Time delay 83

9.3.3. Trends 83

9.4. Recovery 83

9.5. Conclusions 83

ANNEXES 83

PART I - INTRODUCTION

1. INTRODUCTION

1.1. Structure of the document

The present document This document cannot be considered as an official poistion of the Commission. is divided in four parts. [1]

This document cannot be considered as an official poistion of the Commission.

The first introductory part is composed of four chapters which contain, respectively, the definitions of the specific terms used throughout the document; give a short description of the European Budget and its different “management” modes; describe the legal background for the reporting of irregularities and the new reporting system.

The second is dedicated to the analysis of irregularities reported in the area of the Traditional Own Resources (Revenues). The implementation mode for this part of the budget is that described under chapter 2.2 letter b) – shared management.

The third is composed of 5 chapters dedicated, respectively, to Agricultural expenditure, European Fisheries Fund, Structural measures (for these three sectors the management mode is that indicated under chapter 2.2 letter b. – shared management), Pre-accession Assistance (the implementation mode for this sector is indicated under letter b. – decentralised management) and Direct expenditure (whose implementation mode is that described under chapter 2.2 letter a.).

The fourth part summarises the main conclusions of parts 2 and 3.

1.2. Definitions

For the purposes of this document, the following definitions apply.

1.2.1. Irregularity

Irregularity : means any infringement of a provision of Community 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 Communities by charging an unjustified item of expenditure to the Community budget.

1.2.2. Fraud

Fraud : There is clear distinction between the legal notion of fraud and a more common sense's notion of the term.

The former refers to definition(s) contained in legal acts which establish the behaviour and its subjective and objective elements that constitute a fraud. These elements need to be ascertained in a court of law decision which is not open for (further) appeal (‘res iudicata’).

The "European" legal definition of the behaviour characterising fraud is contained in article 1(1), point (a), of the "Convention on the Protection of the European Communities' Financial Interests" according to which, “[…] fraud affecting the European Communities' financial interests shall consist of:

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 articles in the criminal and civil code that describe the conducts and the related penalties. Some of these provisions are the result of the implementation of the Convention into the national legal system.

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 the results, the Commission works on the basis of the information supplied by Member States concerning cases of irregularities some of which, in the opinion of the reporting Member States, give rise to suspicions of fraud. The Commission's statistical assessment of and ability to respond to, irregularities are influenced by the accuracy and timeliness of the notifications made by the Member States.

1.2.3. Suspected fraud

Suspected fraud : 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 Convention on the protection of the European Communities' financial interests.

This definition has been introduced in Commission Regulation (EC) N. 2035/2005. It has been "confirmed" in Regulation N. 1828/2006 for the Programming Period 2007-2013.

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.

1.2.4. Irregularity and Fraud Rates

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

Equation 1 1 : Irregularity Rate

Irregularity Rate (IR) Total financial amount affected by irregularity x 100

Total payments/expenditure

The Fraud Rate (FrR) is calculated using Equation 1-2 below:

Equation 1 2 : Fraud Rate:

Fraud Rate (FrR) Total financial amount affected by suspected fraud x 100

Total payments/expenditure

The IrR and FrR can be calculated by financial year (as in the case of the Agriculture sector – see Chapter 6) or on the entire Programming Period (as in the case of Structural Funds – see Chapter 7) and by Member State. Please note that the FrR is calculated using amounts linked to cases of suspected fraud These rates and the following levels had already been introduced in the 2008 Report and Statistical Annex with similar names. This year’s Statistical Annex defines precisely these concepts in order to use them in the years to come. In other parts of the Statistical Annex 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”.[2]

These rates and the following levels had already been introduced in the 2008 Report and Statistical Annex with similar names. This year’s Statistical Annex defines precisely these concepts in order to use them in the years to come. In other parts of the Statistical Annex or in the Report itself, the Fraud Rate may be referred to also as Suspected Fraud Rate. The calculation method remains the same.

1.2.5. 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 1-3 below.

Equation 1 3 : Fraud Frequency Level

Fraud Frequency Level (FFL) Total number of suspected fraud cases x 100

Total number of reported irregularities

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 1-4 below.

Equation 1 4 : Fraud Amounts Level

Fraud Amount Level (FAL) Total financial amount affected by suspected fraud x 100

Total amount affected by irregularities

FFL and FAL can be calculated by financial year (as in the case of the Agriculture sector – see Chapter 6) or on an entire Programming Period (as in the case of Structural Funds – see Chapter 7) and by Member State.

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. A small amount – around 1% of the Union's national wealth, which is equivalent to about EUR 235 per head of the population – comes into the EU's annual budget and is then spent mainly for its citizens and communities.

2.1. Revenues

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

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2.2. Expenditure

The EU Budget for 2009 included 6 headings of expenditure:

– Sustainable Growth represents the largest share of EU budget the biggest 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;

– 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 New EU Countries.

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 2009 budget by sub-heading.

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

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2.3. Management of the Budget and Legal Framework for the Reporting of irregularities

According to article 317 of the Treaty on the Functioning of the European Union (ex Article 274 of the Treaty establishing the European Community), the Commission shall implement the budget. Council Regulation (EC, Euratom) No 1605/2002 Official Journal L 248 of 16.09.2002 of 25 June 2002 on the Financial Regulation (FinR) applicable to the general budget of the European Communities indicates that the Commission implements the budget:[3]

Official Journal L 248 of 16.09.2002

(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 Communities - 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 and the Reporting Systems

3.1. The Legal Framework

European legislation provides for the protection of the Union’s financial interests in all areas of activity See in particular Article 3(1) of Council Regulation (EEC) No 595/91 of 4 March 1991 (OJ L 67, 14.3.1997), 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), and 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 expenditure, and Article 6(5) of Council Regulation (EC, Euratom) No 1150/2000 for traditional own resources. . The FinR sets the principles and rules for the correct implementation of the budget. Member States are required to notify the Commission of evidence of fraud and other irregularities. This need is particularly evident in those sectors of the Community budget where the main responsibility for management is with the Member States, namely, in the fields of Agriculture and Structural Funds (on the expenditure side) and Own Resources (on the revenue side). In these areas, Member States must inform the Commission of all irregularities involving more than €10°000 of community finances. This applies at all stages in the procedure for recovering monies unduly paid or not received.[4]

See in particular Article 3(1) of Council Regulation (EEC) No 595/91 of 4 March 1991 (OJ L 67, 14.3.1997), 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), and 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 expenditure, and Article 6(5) of Council Regulation (EC, Euratom) No 1150/2000 for traditional own resources.

Regulation No. 1150/2000 specifies the requirement for own resources and Regulation No. 1848/2006 As of 1st January 2007, also the threshold for the agriculture sector has been increased to €10,000 following the provisions contained in article 6(1) of Regulation (EC) 1848/2006 of 14 December 2006 (OJ L 355 of 15.12.2006). 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 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 and 1831/94 Regulation 1831/94 applies to the Cohesion Fund. It has been amended by Regulation No. 2168/2005 of 23 December 2005. for the programming periods until the 2000-2006 and by Regulation No 1828/2006 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. for the period 2007-2013 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. . In the case of pre-accession funds the obligation to report irregularities is specified in Community legislation and in the Pre-Accession and Accession Agreements the European Community and the Candidate and Acceding States. [5][6][7][8][9]

As of 1st January 2007, also the threshold for the agriculture sector has been increased to €10,000 following the provisions contained in article 6(1) of Regulation (EC) 1848/2006 of 14 December 2006 (OJ L 355 of 15.12.2006).

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

Regulation 1831/94 applies to the Cohesion Fund. It has been amended by Regulation No. 2168/2005 of 23 December 2005.

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.

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.

Member States are required to report detected irregularities within two months of the end of each quarter. The initial communication has to be updated with follow-up communications to provide relevant information about the financial, administrative and judicial follow-up.

3.2. 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).

3.2.1. Own Resources

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 €10 000.

3.2.2. Irregularity Management System

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 irregularities and (suspected) frauds under the different sectoral legislations mentioned in paragraph 1.2. The modules are named after the corresponding Regulation.

Figure 3-1 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 3 1 : IMS architecture

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IMS is a web based application that can be accessed directly via internet; this easies accessibility to the system, which has led to an enormous increase of the number of users in relation to the previous electronic reporting system which was using a more rigid connectivity and therefore a more limited number of users.

Another important feature of IMS is also the possibility of creating different cascade levels for each Member States, allowing establishing a “workflow” which effectively reflects the complexity of the reporting system which normally involves several bodies with different levels of responsibility, often requiring the superior to approve the transmission of the notification further on up to OLAF.

This flexibility of the system , however, implies an increased complexity in its setting up, considering that Member States’ organisation for irregularity reporting ay involve many bodies and authorities, which, then, need to be set up into the system. To exemplify such complexity, it could be mentioned the case of Spain for the Structural Funds, for which 1 organisation needs to be set up for each Operational Programme (OP). For the Programming Period 2007-2013 alone, 46 OPs (excluding those of the Territorial Cooperation Objective) have been approved.

Due to these complexities, 2009 needs to be seen as a transition year for irregularity reporting, because it implied a great effort from Member States and OLAF for the design and implementation of the reporting structures, the creation of the users, the verification and migration of existing communications. Chapter 6, 7 and 8 provide more details about the implementation of IMS in the relevant fields.

3.3. 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” 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. Discussions are continuing in the Advisory Committee on the Coordination of Fraud Prevention. and as a result of this, attempts to measure 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 .[10]

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. Discussions are continuing in the Advisory Committee on the Coordination of Fraud Prevention.

PART II - REVENUES

4. TRADITIONAL OWN RESOURCES (ANNEXES 3-13)

4.1. Management of Traditional Own Resources (TOR)

The Community must have access to Traditional Own Resources (‘TOR’) These are mainly customs and agricultural duties but also include anti-dumping duties and sugar levies under the best possible conditions. In conformity with Regulation (EC, EURATOM) No 1150/2000 Regulation No 1150/2000 of 22 May 2000. 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 established 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. [11][12]

These are mainly customs and agricultural duties but also include anti-dumping duties and sugar levies

Regulation No 1150/2000 of 22 May 2000.

4.1.1. 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 95% 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:

– Overall monitoring of recovery of TOR via the write-off procedure;

– Regular inspection in Member States of the establishment and recovery of TOR, and B-account entries;

– 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.

4.1.2. 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.

Amounts of TOR become irrecoverable by one of two routes. 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.

A 2004 amendment to Regulation No 1150/2000 Regulation No 2028/2004, amending Regulation No 1150/2000. 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, the reports by Member States to write off established TOR amounts deemed irrecoverable increased significantly to 589 in 2008 compared with 100 reports in 2007. In 2009 the quantity of new reports was 168. The increase in 2008 primarily consisted of old cases not yet reported to the Commission. [13]

Regulation No 2028/2004, amending Regulation No 1150/2000.

A new IT application called WOMIS WOMIS: W rite- O ff M anagement and I nformation S ystem. was introduced in January 2010 to support Member States and the Commission in managing write-off reports.[14]

WOMIS: W rite- O ff M anagement and I nformation S ystem.

In 2009 168 write-off reports amounting to EUR 108 016 054.15 were communicated to the Commission by 11 Member States. In total, 527 reports were processed in 2009 Origin of the cases: 4 from Austria, 2 from Belgium, 1 from the Czech Republic, 243 from Germany, 9 from Denmark, 1 from Greece, 61 from Spain, 4 from France, 4 from Finland, 1 from Ireland, 60 from Italy, 106 from the Netherlands, 2 from Portugal, 3 from Sweden and 26 from the UK. with the following result The breakdown between the amounts for each of the positions is, at present, only an estimate, because sometimes elements from the same case may be partly accepted, considered not suitable or refused. Additional information from the Member States (in particular on the proportion covered by guarantee) is then needed to provide the final classification and quantification of the amounts concerned. : [15][16]

Origin of the cases: 4 from Austria, 2 from Belgium, 1 from the Czech Republic, 243 from Germany, 9 from Denmark, 1 from Greece, 61 from Spain, 4 from France, 4 from Finland, 1 from Ireland, 60 from Italy, 106 from the Netherlands, 2 from Portugal, 3 from Sweden and 26 from the UK.

The breakdown between the amounts for each of the positions is, at present, only an estimate, because sometimes elements from the same case may be partly accepted, considered not suitable or refused. Additional information from the Member States (in particular on the proportion covered by guarantee) is then needed to provide the final classification and quantification of the amounts concerned.

Table OR1: Write-off reports treated in 2009

Commission position|cases|% cases|EUR|% amount|

NON- ADMISSIBLE WRITE-OFF CASES|4|0.1%|330°889.10|0.13%|

WRITE-OFF CASES ACCEPTED|218|41.7%|91°055°286.24|37.06%|

ADDITIONAL INFORMATION REQUIRED|244|46.5%|142°767°541.03|58.11%|

WRITE-OFF CASES REFUSED|61|11.7%|11°521°494.31|4.69%|

TOTAL|527|100%|245°675°210.68|100%|

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.

4.1.3. 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 Case C-392/02 of 15 November 2005. These cases are identified on the basis of Articles 220(2)(b) (administrative errors not detectable by the operator) 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. . In 2009 Member States have been held financially liable for over EUR 9 million and new cases are being given appropriate follow-up. [17]

Case C-392/02 of 15 November 2005. These cases are identified on the basis of Articles 220(2)(b) (administrative errors not detectable by the operator) 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.

Altogether all cases up until the end of 2009 total nearly EUR 280 million. 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.

4.2. Reporting discipline

Under Article 6(5) of Regulation No 1150/2000, Member States are required to communicate to the Commission, via the OWNRES system OWNRES is an abbreviation for Own Res ources. , 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.[18]

OWNRES is an abbreviation for Own Res ources.

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% 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. . This match is checked during the regular inspections in the Member States; however, no significant shortcomings have been found in recent years At the end of 2009 the total amount that is still to be recovered according to OWNRES is higher than the amount of not yet recovered TOR in the B-account. This difference can mostly be explained by the fact that OWNRES is updated with a regulatory delay, as recovery actions should be registered that have taken place. Other explanations are cases seized and confiscated cigarettes and – unfortunately – undue delays. .[19][20]

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.

At the end of 2009 the total amount that is still to be recovered according to OWNRES is higher than the amount of not yet recovered TOR in the B-account. This difference can mostly be explained by the fact that OWNRES is updated with a regulatory delay, as recovery actions should be registered that have taken place. Other explanations are cases seized and confiscated cigarettes and – unfortunately – undue delays.

4.2.1. 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 2008 in last year’s report was 5 344 cases, whereas the number of cases now shown for 2008 is 6 075 cases The information generated by OWNRES to produce the figures in this chapter was all obtained from queries made on 5 March 2010. . This continuing development is inherent to the system.[21]

The information generated by OWNRES to produce the figures in this chapter was all obtained from queries made on 5 March 2010.

4.3. General trends

The number of cases communicated to OWNRES for 2009 is currently 23% lower in comparison with 2008 (from 6 075 to 4 684). The amount of TOR involved is likewise 8.5% smaller (from EUR 375 million to EUR 343 million ) See Annex 3 (table) and Annex 4 (chart). . The trend for the number of belatedly discharged Community Transit operations to decrease continued In 2005 the number of cases of belatedly discharged Transit was 2 374, being 38.2% of the total number of cases registered and 27.9% of the total amount initially established. In 2006 there were 1 479 cases (24.2% of cases and 19.5% of the total amount) and in 2007 there were 1 395 cases (22.2% of cases and 16.5% of the amount), in 2008 there were 1 136 (18.7% of cases and 13.8% of the amount). In 2009 the figures are respectively 738 (15.8% of cases and 13.8% of the amount). whereas the amount involved remained stable . 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.[22][23]

See Annex 3 (table) and Annex 4 (chart).

In 2005 the number of cases of belatedly discharged Transit was 2 374, being 38.2% of the total number of cases registered and 27.9% of the total amount initially established. In 2006 there were 1 479 cases (24.2% of cases and 19.5% of the total amount) and in 2007 there were 1 395 cases (22.2% of cases and 16.5% of the amount), in 2008 there were 1 136 (18.7% of cases and 13.8% of the amount). In 2009 the figures are respectively 738 (15.8% of cases and 13.8% of the amount).

The number of communications from the ten new Member States showed continued growth since their accession in 2004 until 2007. In 2008 the growth stopped and 2009 shows 2% less communicated cases compared with 2008 although the amount of TOR increased by 20% from 2008 to 2009.

The OWNRES database now contains 57 183 cases in total (1989-2009) and shows an increase of nearly 11% during 2009 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 14%). . Significant changes in the number of registrations in 2009 compared with 2008 can be seen for Greece (- 68%), Estonia (- 35%), Austria (+ 61%), Bulgaria (+ 79%) and Slovenia (+ 92%). , and Significant changes of amounts can be seen in Estonia (- 69%), Portugal (- 60%), Austria (+ 39%), Denmark (+ 121%), Bulgaria (+ 146%), Slovakia (+ 375%) and Malta (+ 467%) Significant changes in amounts involved generally relate to one or a few (very) big cases, e.g. Austria: 5 cases totalling to €14.8 million (involving Clothing from China, CN 61); Denmark: 2 cases totalling €5.4 million (involving Clothing from China, CN 62 and Chemical Products from China, CN 29). . [24][25]

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 14%).

Significant changes in amounts involved generally relate to one or a few (very) big cases, e.g. Austria: 5 cases totalling to €14.8 million (involving Clothing from China, CN 61); Denmark: 2 cases totalling €5.4 million (involving Clothing from China, CN 62 and Chemical Products from China, CN 29).

4.3.1. 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 (73% of cases See Annex 5. In 2005 there was a decrease in importance of the customs procedure release for free circulation (53% of cases) which was linked to an improvement in registering those cases. ). 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.[26]

See Annex 5. In 2005 there was a decrease in importance of the customs procedure release for free circulation (53% of cases) which was linked to an improvement in registering those cases.

The goods (defined by the first two numbers of the CN code Combined nomenclature or CN — nomenclature of the Common Customs Tariff. ) most affected by fraud and irregularities in 2009, as in previous years, are TVs/monitors etc. (CN 85), Clothing (CN 61) and Tobacco products (CN 24). Cars/motors (CN 87) increased in importance when compared to 2008, as did Food (CN 16), Chemical products (CN 29) and Articles of iron and steel (CN 73) See Annexes 4 and 5. . [27][28]

Combined nomenclature or CN — nomenclature of the Common Customs Tariff.

See Annexes 4 and 5.

Chart OR1: Fraud and irregularities breakdown by good in 2009 (in million EUR) The product description in the chart is a generic description of the goods involved. See Annexes 4 and 5 for detailed analysis. [29]

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

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Evaluation of the origin of goods subject to fraud and irregularity See Annex 8. reveals that, just as in 2008, goods originating from China, the US, Japan, South Korea and Bangladesh remain very much affected. The number of cases originating from Hong Kong, Vietnam and Argentina increased. [30]

See Annex 8.

4.3.2. TOR and cigarettes

In 2009 there were 204 cases registered of seized and confiscated cigarettes (CN code 24 02 20 90) involving estimated TOR of over EUR 19 million. In 2008 the number of registered cases concerning seized and confiscated goods was 312, totalling over EUR 23 million. The decrease of the number of cases is related to the EUR-15, of which the UK shows the most significant decrease, from 152 cases in 2008 down to 82 cases in 2009.

4.3.3. Data main sectors TOR

See Annexes 3-12.

4.4. Recovery

· Member States have to recover 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 Community Transit this may reach up to 90%. As a consequence, Belgium and the Netherlands show more corrections than average, because establishments related to Community Transit occur more frequently. This is due to the ports of Antwerp and Rotterdam.

4.4.1. 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 (1989-2009) is 45.1% This calculation is based on 57 183 cases, an established amount of €4.3 billion (after corrections) and a recovered amount of €1.9 billion. . [31]

This calculation is based on 57 183 cases, an established amount of €4.3 billion (after corrections) and a recovered amount of €1.9 billion.

The overall recovery rate for 2008 recorded in last year’s report was 38%, although it has since then climbed to 52%. At present the recovery rate for 2009 is 44% See Annex 9. . In other words, of every €10 000 of duties initially established in 2009 in OWNRES, approximately EUR 4 400 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).[32]

See Annex 9.

4.5. Detection of fraud and irregularities

OWNRES uses the following definitions for fraud and irregularity:

Fraud is defined Source: Article 1 of the Convention (Council Act of 26 July 1995) drawn up on the basis of Article 235 (protection of the Communities' financial interests) of the Treaty establishing the European Community. as any intentional act (also cases of organised crime) or omission[33]

Source: Article 1 of the Convention (Council Act of 26 July 1995) drawn up on the basis of Article 235 (protection of the Communities' financial interests) of the Treaty establishing the European Community.

relating to:

● the use or presentation of false, incorrect or incomplete declarations or documents or non-disclosure of information, which has as its effect the illegal reduction of Traditional Own Resources (TOR),

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

Irregularity is defined Source: Council Regulation n° 2988/95 on the protection of the European Communities financial interests. as:[34]

Source: Council Regulation n° 2988/95 on the protection of the European Communities financial interests.

● any breach of a provision of Community law (also unintentional),

● resulting from an act or omission by an economic operator

● which has, or would have, the effect of reduction or a loss of own resources (e.g. customs duties).

Irregularity includes negligence, errors, mistakes etc.

Of all the cases registered in OWNRES in 2009 19% (893 out of 4 684 registered cases) are categorised as fraud, which is the same proportion as in 2008 See Annexes 11 and 12. . However, like in previous years, the differences between Member States are relatively large. In 2009 most of the Member States categorised between 10-50% of all cases as fraud. However, six Member States categorised less than 10% Germany (5%), France (8%), Sweden (9%), Czech Republic (3%), Estonia (0%) and Latvia (5%). Luxemburg reported no cases of fraud and irregularity in 2009. of the cases as fraud, whereas four Member States registered more than 50% Greece (83%), Italy (58%), Bulgaria (65%) and Malta (100%). 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.[35][36][37]

See Annexes 11 and 12.

Germany (5%), France (8%), Sweden (9%), Czech Republic (3%), Estonia (0%) and Latvia (5%). Luxemburg reported no cases of fraud and irregularity in 2009.

Greece (83%), Italy (58%), Bulgaria (65%) and Malta (100%).

Chart OR2: Fraud and irregularities breakdown by Member States in 2009 (in million EUR)

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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.

Chart OR3: Percentage of fraud cases detected by primary inspection – 2007-2009

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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.

4.5.1. Member States' control systems

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 2009 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 31%. All in all, the vast majority of cases (75%) were detected in 2009 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 2009. The relative importance of inspections by anti-fraud services was stable with 7% in 2009. Since the final results of such inspections take more time than regular inspections, a (slight) increase in the percentage for 2009 may be expected in future registrations.

Chart OR4: Method of detection – 2007-2009

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The map below illustrates by which methods OWNRES cases - in amounts - have been discovered by the Member States For details see annex 13. Luxemburg did not register any OWNRES case in 2009 in 2009. For reasons of presentation the following methods are included in the term "ex-post controls": audit of the accounts, Community inspections, inspections by anti-fraud services, inspection visits, national post-clearance audits and tax audits.[38]

For details see annex 13. Luxemburg did not register any OWNRES case in 2009

Map OR1: Detection methods by Member State - 2009

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4.6. 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 and monitors, clothing and of course tobacco keep their relevance in 2009 and are like in previous years the most important goods involved in registered cases of irregularity or fraud. The origin of the goods concerned is likewise varied, although some countries remain continuously at the top of the rankings (such as China, the US, Japan). Irregularity or fraud are mostly discovered by a Member State in the customs procedure of release for free circulation (false declarations, formal shortcomings or simply smuggling), as in previous years.

(3) The amounts of TOR at stake in irregularity and fraud are, according to OWNRES, up to €343 million in 2009. Of the amounts initially established, approximately 45% is later cancelled and in the case of establishments related to Community Transit up to 90% of the established amount may be cancelled later. And payment is required only for the part which is not cancelled. The initial recovery figures for 2009 are comparable to those of previous years.

(4) The methods of detection vary between Member States, however, in 2009 post-clearance inspections and primary controls (during the clearance) are creating 75 % of all OWNRES cases. 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 II - EXPENDITURE

5. AGRICULTURAL EXPENDITURE (Annexes 14-15)

5.1. Introduction

The Common Agricultural Policy (CAP) has been one of the most important common policies over the years, as a large part Almost 40% of the total 2009-budget was spent in the agricultural sector. of the European Union's (EU) budget is spent in the agricultural sector. [39]

Almost 40% of the total 2009-budget was 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 2009 was about EUR 137 billion. More than EUR 52 billion The amounts include "assigned revenue" of EUR 1.6 billion negative expenditure, representing amounts recovered for cases of irregularities (including fraud), superlevy from milk producers and temporary restructuring amounts. was spent in the agricultural sector, of which EAFRD expenditure accounts for about EUR 8.2 billion.[40]

The amounts include "assigned revenue" of EUR 1.6 billion negative expenditure, representing amounts recovered for cases of irregularities (including fraud), superlevy from milk producers and temporary restructuring amounts.

The basic rules for the financial management of the CAP can be found in Reg. 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. A web based application which facilitates reporting in digital format.

Module 1848 was introduced in 2008 and is used by all Member States. It concerns a web based application that can be accessed directly via internet. Accessing Module 1848 via internet is only possible since 16 May 2009 due to the later approval of the security protocols. Till that moment, Member States had to use the old-fashioned CCN -gateway (ISDN-line) to get access to Module 1848.

Access via internet led to an enormous increase of the number of users of Module 1848. In the past, only 1 or 2 persons per Member State could submit communications in electronic format. That changed with the introduction of "access via internet". The number of users became in principle "unlimited". Having access to internet means that access to Module 1848 can be obtained.

The year 2009 should therefore again be seen as a transition year for irregularity reporting due to the introduction of access via internet, the introduction of the cascaded reporting structure and the enormous increase of the number of users.

The introduction of the cascaded reporting structure made it possible to have reporting authorities and users on different levels. The total number of users increased from less than 50 to more than 800. Germany for instance has now 40 reporting authorities and 237 users. The increase of the number of users of Module 1848 has also led to an increase of the number of cases reported, higher data quality and a higher compliance rate. Many hands make lighter and better work!

2009 was also the year in which the 1848-liaison-officer was introduced. The 1848-liaison-officer is the linking-pin between OLAF and the Member States. All information concerning Module 1848 is communicated via the 1848-liaison-officer. The 1848-liaison-officer is also responsible for the reporting structure of a Member State. Only the 1848-liaison-officer can modify a reporting structure and grant or revoke access to Module 1848. The 1848-liaison-officers play also an important role in the process of quality checks. Before a communication is submitted to OLAF, a quality check is performed and necessary corrections are made.

Member States reported 1°621 new irregularities under Reg. 1848/2006 compared with 1°133 irregularities in 2008. The total amount affected in 2009 was about EUR 125 million, as against approximately EUR 102 million in 2008. Luxembourg and Slovenia did not report any irregularity in 2009. Irregularities notified in this sector represent 0.24% of the agricultural budget.

Annex 13 provides an overview of the financial impact for the period 2000 – 2009 as annex 14 gives an overview per Member State of the number of irregularities, the amounts involved and the percentage of agricultural expenditure.

The analysis of the reported cases is a descriptive analysis based on the communications forwarded by Member States under Reg. 1848/2006. It should be noted that not all irregularities have to be reported. Member States must only inform the Commission of irregularities involving more than EUR 10°000. The threshold of EUR 10°000 was introduced by Reg. 1848/2006 that came into force on 1 January 2007. Reg. 1848/2006 replaced Reg. 595/91, which had a threshold of EUR 4°000. The increase of the threshold from EUR 4°000 to EUR 10°000 has to be taken into account when this report is compared with reports of years before 2007. The number of reported irregularities in 2009 is about half (1/2) the number of reported irregularities before 2007. The descriptive analysis of this report therefore, cannot be right away compared with the results of previous years.

5.2. Reporting discipline

Article 3 and article 5 of Reg. 1848/2006 lay down the reporting obligations of Member States. The reporting obligations as stipulated in article 3, paragraph 1, letters a – p of Reg. 1848/2006 are used to determine the reporting discipline and the level of compliance of the Member States. The focus will be 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.

The main purpose of forwarding information is to enable the Commission to perform risk analyses 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. . For that purpose, OLAF needs to receive reliable, consistent and complete data and as early as possible (timely!). [41]

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.

Table AG1 provides an overview of the compliance rate per reporting obligation. Member States are ranked in order of their overall 2009 compliance rate.

Table AG1: compliance per Member State year 2009

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Luxembourg and Slovenia had no irregularities to report and are therefore considered to be 100% compliant and are put on top of the table.

Table AG1 focuses on reporting obligations that have a high added value for analysis purposes. The letters above the columns refer to the reporting obligations of Art. 3(1) of Reg. 1848/2006. The fourth column from the right hand side shows the compliance rate per Member State for the financial year 2009. The second and third column from the right hand side contain the compliance rates for the years 2007 and 2008 in order to make it possible to compare 2009 with previous years.

A first conclusion is that the overall reporting discipline improved. This is thanks to a positive attitude of all Member States, the introduction of a new reporting system and the enormous increase of the number of users of Module 1848.

19 Member States have a compliance rate above 90%. 4 Member States (NL, PL, MT and AT) have a compliance rate between 80% and 90% as 2 Member States (UK and FI) have a compliance rate below 80% . . Luxembourg and Slovenia did not report irregularities, therefore, are not taken into consideration.

Latvia is the Member State with the highest compliance rate: 100%.

Finland has the lowest compliance rate: 70%.

It is clear that Finland should pay more attention to the reporting obligations of Reg. 1848/2006. Other Member States that should pay more attention to the reporting obligations are Austria, Malta, the Netherlands, Poland and the United Kingdom.

Finland, Malta and Poland could improve their compliance rate by reporting personal data. The non-reporting of personal data led to a relatively low compliance rate. Finland Finland reports personal data for irregularities concerning structural funds. and Poland Poland used to report personal data but stopped doing that in 2008. informed the Commission that due to national data protection legislation no personal data could be submitted. The obligation to report personal data is based on EU-regulations. By granting subsidies, Member States also accepted the reporting obligations of Reg. 1848/2006, including the reporting of personal data.[42][43]

Finland reports personal data for irregularities concerning structural funds.

Poland used to report personal data but stopped doing that in 2008.

Timely reporting is still a concern for Austria, Finland, the Netherlands, Slovakia and the United Kingdom.

For all Member States count that the reporting of the measure affected deserves some extra attention. Some Member States still use a budget line of the running year in stead of indicating the budget line that was really affected by the irregularity. A simple example: a budget line of 2009 is used for a payment made in 2004.

The overall compliance improved strongly since 2007. It went up from 78% to 95%. Member States that made a big step forward are Germany (↑54%) and Spain (↑49%). This enormous improvement can be explained by the fact that both started to report in electronic format. Some Member States had a small setback and need to pay some extra attention to their compliance.

Overall compliance rate is 95% 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. That will change in 2010. The quality of the information provided will also be taken into account to determine the compliance level. .[44]

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. That will change in 2010. The quality of the information provided will also be taken into account to determine the compliance level.

The map on the next page provides an overview of Member States' compliance.

(...PICT...)

(...PICT...)

(...PICT...)

The map indicates Member States’ compliance. The darker the colour, the higher the compliance. Especially the Member States that are coloured light need to work on their compliance. It concerns Finland, United Kingdom, Austria, Malta, Poland and the Netherlands. As already mentioned in the introduction, granting subsidies, setting up audit strategies, performing audits, reporting irregularities and recovery of unduly paid amounts go hand in hand.

5.3. General trends

In previous years, the statistical annex provided overviews of the expenditure of that financial year and the irregularities that were reported during that financial year. These irregularities however, did not necessarily refer to the expenditure of that year. Irregularities are normally detected and reported 3 - 5 years after expenditures have taken place. In order to bring expenditure and cases of irregularities in line with each other, the statistical annex will contain from this year on analyses of expenditures and irregularities related to these expenditures.

In order to make it possible to make a comparison with reports of previous years, an overview of the irregularities reported during the financial year 2009 (FY2009) will be provided. That overview can be found in paragraph 5.3.1. and table AG2.

It is good to keep in mind that the analysis a descriptive analysis is. The aim of the analysis is to provide feedback to the Member States on the communications that were received by the Commission in the financial year 2009 and to give an overall view for the period 1971 - 2009.

It is also good to bear in mind that Member States must only inform the Commission of irregularities involving more than EUR 10°000.

5.3.1. Irregularities in perspective – cases reported in 2009

Table AG2 provides an overview per Member State of the irregularities reported in the period 2006 - 2009.

Table AG2: Irregularities reported in the financial year 2009

(...PICT...)

These irregularities concern expenditures for the financial years 1991 – 2009 and were first reported in the period 2006 – 2009.

Member States reported 1,621 cases during the financial year 2009. These 1,621 cases amount to approximately EUR 125 million.

In the period 2002 – 2006, Member States reported about 3°200 cases per year. In 2007, a new threshold, under which no irregularities have to be reported, was introduced. The threshold increased from EUR 4°000 to EUR 10°000 and led to a strong decrease of the number of cases in 2007 and 2008, respectively 1°548 and 1°133.

The number of irregularities increased in 2009 with almost 500 cases (± 43%). A reason for this remarkable increase is the becoming operational of IMS IMS = irregularity management system , which made it possible to access Module 1848 directly via internet. Till 2009 it was only possible for Member States to process communications on a central level, which implies that only a limited number of users had access to the electronic reporting system. That changed with the introduction of IMS. Module 1848 can be accessed directly via internet. This made it possible to have an unlimited number of reporting authorities and users. Having access to internet means also that access to Module 1848 can be obtained. In 2009, the number of users increased from less than 50 to more than 800. This implies that far more users were able to process communications, which had a direct impact on the number of cases reported. [45]

IMS = irregularity management system

Member States reported 30 cases with an amount affected below the reporting threshold of EUR 10°000. Cases below the threshold of EUR 10°000 should only be reported if there is a specific reason to report these cases, as for instance fraud or a clear link with other cases. For another 24 cases counts that Member States indicated a zero as amount affected by the irregularity. For almost all these cases counts that no specific reasons were given why these cases were reported. Only Belgium and Romania indicated that it concerned "suspected-fraud-cases".

Spain and Italy were the Member States that reported the highest number of cases with 404 and 288 cases respectively. Portugal reported as usual a relatively high number of cases (121) considering the fact that the total Portuguese expenditure is relatively low, about 2% of the total expenditure (EU-27). Austria reported a relatively low number of cases: 3.

In monetary terms, Italy reported the highest amounts affected by irregularities, more than EUR 54 million, followed by Spain which reported a total amount of approximately EUR 28 million.

Member States reported in total 11 cases in which the total amount affected by irregularities was higher than EUR 1 million. Italy reported 2 cases for which the total amount affected was even more than EUR 10 million.

The amounts affected by irregularities increased with about 23% to approximately EUR 125 million (see also annex 14 and annex 15).

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The chart on the right hand side reflects the trends for the period 1971 – 2009.

5.3.2. Impact on the budget – cases reported for the financial years 2006 - 2009

Table AG3 provides an overview of the expenditure Expenditure is based on DG AGRI's database CATS - table 106 (download 26 May 2010) of the financial years 2006 – 2009 and the cases of irregularities related to this expenditure. Experience learns that Member States submit cases of irregularities in the first 3-5 years after expenditures have been made. This means that more cases of irregularities can still be expected for the financial years 2006 – 2009. There are also still ex-post audits going on which findings can lead to more cases of irregularities. These figures therefore, cannot be considered as final figures but need to be seen as half-time-result.[46]

Expenditure is based on DG AGRI's database CATS - table 106 (download 26 May 2010)

Table AG3: Expenditure and irregularities per budget chapter

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Member States are ranked on basis of the total expenditure. The total expenditure in the period 2006 - 2009 was almost EUR 201 billion. France spent, with almost EUR 40 billion, the highest amount and can be found on top of the table. Malta had an expenditure of about EUR 25 million and can be found at the bottom of the table.

The third column on the left hand side indicates the relation between a Member State's expenditure and the total expenditure (EU-27). France spent about 20% as Germany and Spain spent about 13%.

In column 5 an overview is given of the number of cases reported by Member States. Member States reported in total 2,086 cases for the financial years 2006 – 2009. The highest number of cases is reported by Spain: 377 cases. Some Member States reported a rather low number of cases. Luxembourg, Slovenia and Austria reported 0, 1 and 6 cases respectively.

Column 6 indicates the amounts affected by the irregularities. The total amount affected is about EUR 97 million. The highest amount is reported by Italy. Italy reported a total amount affected by irregularities of about EUR 14.2 million. It concerns 108 cases. Remarkable is the high amount affected by irregularities already reported by Belgium: EUR 13.9 million. As mentioned, these irregularity figures relate to the 2006-2009-expenditure, which implies that more cases can be expected.

Column 7 provides the so called irregularity rate (IrR) See also chapter 5.4. Specific analysis , See for a more in depth explanation paragraph 1.2.4. . It is the total amount affected by irregularities divided by the total expenditure (e.g. for France 0.03% = EUR 11°761°063 / EUR 39°873°055°647). The overall average is 0.05%. These figures should however be interpreted cautiously. As indicated at the beginning of this chapter, this should be seen as a "half-time-result". There are still ex-post audits going on which means that more cases of irregularities can be expected. Big spenders like Poland, Ireland, France, Greece, Germany and United Kingdom have an irregularity rate that is below the average of 0.05%. The other 2 big spenders, Spain and Italy, have an irregularity rate just above the average, respectively 0.06% and 0.07%. The 3 Scandinavian countries (DK, FI and SE) have a comparable and rather low irregularity rate: < 0.02%. [47][48]

See also chapter 5.4. Specific analysis

See for a more in depth explanation paragraph 1.2.4.

The number of cases reported does not necessarily mean that more irregularities are committed in a Member State. A more developed audit strategy, tailor made audits, higher number of performed audits and so forth will normally lead to a higher number of detected irregularities. In other words, it could be possible that Member States with a higher irregularity rate perform better than Member States with a lower irregularity rate.

A higher expenditure leads normally to a higher number of cases. The figures in table AG3 confirm this hypothesis. The Member States with the highest expenditure (Spain, France, Germany and Poland) reported the highest number of cases. Portugal is the exception on the rule. It reports traditionally a higher number of cases. Portugal reported for the period 2006 – 2009 already 155 cases. The number of cases reported by France, Italy, United Kingdom, Greece and Austria is relatively low. It concerns however a "half-time-result" therefore it is possible that more cases will be reported in the near future. It indicates however, that these Member States detect and/or report their cases later than other Member States. The United Kingdom informed the Commission that due to technical problems not all cases were submitted. Also here counts that more cases can be expected in the near future. The Reports on the Protection of EU Financial Interests of previous years mentioned that Austria is rather late with the reporting of irregularities See OLAF’s website: http://ec.europa.eu/anti_fraud/reports/ . This could be the explanation for the rather low number of cases reported by Austria. [49]

See OLAF’s website: http://ec.europa.eu/anti_fraud/reports/

5.3.3. Impact on the budget – overview per budget chapter financial years 2006 - 2009

Table AG4 provides an overview per budget chapter of the expenditure and irregularities reported for the financial years 2006 - 2009. The budget chapters are ranked on basis of the expenditure. It still counts that this should be seen as a "half-time-result". Audits are still ongoing, therefore, more irregularities will be reported.

Table AG4: Amounts affected per budget chapter

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The highest expenditure concerns budget chapter 050301 "decoupled direct aids". The total expenditure is about EUR 110 billion, which is 55% of the total expenditure. It can be assumed that a sector that "consumes" already 55% of the total agricultural budget will get more attention of the authorities. Member States reported also the highest number of irregularities for this sector: 585 cases. The total amount affected was about EUR 14.8 million.

Budget chapter 050302 "other direct aid" can be found on the second place. An amount of about € 35 billion has been spent for this sector. That is about 18% of the total expenditure. These 2 sectors consume together already more than 70% of the total 2006-2009 expenditure. For both sectors count that the amounts affected by irregularities are rather low. Both sectors have an irregularity rate of 0.01%

Sectors that have a rather high irregularity rate are:

· 050205: sugar 0.71%

· 050215: pigmeat, eggs and poultry etc. 0.51%

· 050401: rural development 0.29%

· 050208: fruits and vegetables 0.27%

· 050210: promotion 0.23%

No cases of irregularities were reported for the sectors "sugar restructuring fund" (050216) and "textile plants" (050207) although there was a substantial expenditure. The latter counts especially for the sector sugar restructuring fund now the total expenditure was almost EUR 4.9 billion.

050301 decoupled direct aids

As mentioned, about 55% of the expenditure concerns "decoupled direct aids" which justifies a closer look at this sector. The overall irregularity rate for "decoupled direct aids", which is controlled through the Integrated Administration and Control System (IACS), is rather low. It differs however strongly per Member State. Table AG5 provides an overview.

Remarkable is that a rather large number of Member States with a relatively low expenditure reported a relatively high number of cases.

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Germany reported the highest number and the highest amounts: 107 cases and a total amount affected of more than EUR 2.5 million. The latter seems to be logic as Germany is the Member State with the highest expenditure: ± EUR 21.1 billion.

France spent the second highest amount for this sector: ± EUR 17.2 billion. It did not report any irregularity. It has to be noted that decoupled direct aid payments started in France only in 2007.

Other Member States that had a rather high expenditure and reported a relatively low number of cases are the United Kingdom, Italy and Greece. The United Kingdom spent almost EUR 13.9 billion and reported 8 cases with a total amount affected of EUR 106°481, which is 0.001% of the total expenditure. As already mentioned, the United Kingdom has some (IT-related) problems with forwarding cases in electronic format, therefore, it is possible that the United Kingdom still has some cases in the pipeline. Italy spent an amount that is more or less comparable with the United Kingdom: ± EUR 11.9 billion. Italy reported 26 cases with a total amount affected of about EUR 1.1 million. Greece spent almost EUR 5.8 billion and reported 7 cases with a total amount affected of EUR 202°232. The irregularity rates for the United Kingdom, Greece and Italy are respectively 0.001%, 0.003% and 0.009%.

Ireland, Romania and Bulgaria reported a relatively high number of irregularities for the sector "decoupled direct aids". The Irish expenditure was about EUR 4.9 billion, which is less than one quarter of the total German expenditure but the number of reported cases is almost the same. Romania and Bulgaria have a comparable irregularity rate, respectively 0.198% and 0.188%.

Austria and Hungary had also a substantial expenditure, respectively EUR 2.2 billion and EUR 2.0 billion, but did not (yet) report any irregularities.

Reporting may also be effected by the EUR 10°000 reporting threshold, given that most payments concern smaller amounts.

5.3.4. Financial follow up of irregularity cases The text, analysis and table of paragraph 5.3.4. is provided by DG AGRI. Under Reg. 1848/2006 Member States are not required to indicate the amounts to recover to OLAF.[50]

The text, analysis and table of paragraph 5.3.4. is provided by DG AGRI. Under Reg. 1848/2006 Member States are not required to indicate the amounts to recover to OLAF.

5.3.4.1. Method of detection – Controls by national authorities

Under the common agricultural policy, a ccording to the principle of shared management the Member States are responsible for paying the agricultural subsidies to the final beneficiaries through paying agencies Regulation (EC) No 1290/2005 (OJ L 209, 11.8.2005) , accredited by the competent authorities of the Member States. They are responsible in particular for checking the admissibility of claims and compliance with EU rules before payment.[51]

Regulation (EC) No 1290/2005 (OJ L 209, 11.8.2005)

For each aid scheme, the relevant sector regulations lay down detailed rules on checks to be carried out by the paying agencies or by delegated bodies operating under their supervision.

All aid applications are subject to administrative checks before any payment is made. On-the-spot checks are carried out on a sample basis which normally ranges between 5% and 100%, depending on the risk in the sector concerned.

The most important control system is the Integrated Administration and Control System (IACS). It covers all direct payments to farmers. IACS includes a computerised database, an identification system for farmers, for agricultural parcels and for animals in case of payments linked to animals, and a system for identification and registration of payment entitlements and aid applications. For aid schemes which do not fall under the IACS such as storage of products or export refunds, complementary checks must be carried out after the payment to the beneficiary has been made.

At the end of each financial year, the certification body draws up a certificate stating whether it has gained reasonable assurance that the accounts transmitted to the Commission are true, complete and accurate and that the internal control procedures have operated satisfactorily.

Member States must send to the Commission the annual accounts of each paying agency, accompanied by a statement of assurance signed by the paying agency's director. The statement of assurance may be qualified by reservations, which must quantify their financial impact. In that case, it must include a remedial action plan and a precise timetable for its implementation. The statement of assurance must be based on an effective supervision of the management and control system in place throughout the year and is subject to an opinion of the certification bodies.

Member States with more than one paying agency must also draw up at the end of the financial year an annual summary report (synthesis) covering the statements of assurance and certificates issued by the certification bodies. Coming on the top of the statements of assurance and certification, this is designed to strengthen the chain of responsibility between the Member States and the Commission.

5.3.4.2. Method of detection - Controls by the Commission

The Commission firstly clears the accounts of the paying agencies on an annual basis as regards their completeness, accuracy and veracity and, secondly, mostly by means of on-the-spot audits, verifies whether the expenditure has been effected by Member States in conformity with the EU rules. Where this is not the case, it excludes the expenditure concerned from EU financing (financial corrections). This latter mechanism, called "conformity clearance", has over the years proven to be a very effective means of protecting the EU's financial interest.

Conformity clearance shields the EU budget from expenditure which should not be charged to it. It is not a mechanism by which irregular payments to final beneficiaries are recovered, something which, according to the principle of shared management, is the sole responsibility of the Member States. Financial corrections are determined on the basis of the nature and gravity of the infringement and the financial damage caused to the EU. The amount is calculated on the basis of the loss actually caused or on the basis of an extrapolation. Where this is not possible, flat-rates are used which take account of the severity of the deficiencies in order to reflect the financial risk for the EU. In financial year 2009 the Commission excluded EUR 655 million from EU financing under the EAGF and the EAFRD Decisions 2008/960/EC (OJ L 340, 19.12.2008) and 2009/253/EC (OJ L 75, 21.3.2009) on grounds of its non-compliance with EU rules.[52]

Decisions 2008/960/EC (OJ L 340, 19.12.2008) and 2009/253/EC (OJ L 75, 21.3.2009)

Where individual irregular payments are or can be identified as a result of the conformity clearance procedures, Member States are required to follow them up by recovery actions against the final beneficiaries. However, even where this is not possible because the financial correction relates exclusively to deficiencies in the Member State's management and control system, the correction remains an important means of improving the functioning of that system and thus of preventing or detecting and recovering irregular payments to final beneficiaries. The conformity clearance thereby contributes to the legality and regularity of transactions at the level of the final beneficiaries.

5.3.4.3. Recovery

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.

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 2009, the 50/50 mechanism was applied by the financial clearance decision for the financial year 2008 Commission Decision 2009/367/EC (OJ L 111, 5.5.2009) on all pending non-recovered cases dating from 2004 or 2000 (cases that were four or eight years old respectively). EUR 31.4 million was charged to the Member States in this way and EUR 20.1 million was borne by the EU budget for reasons of irrecoverability. A further EUR 0.8 million was charged to the Member States by a subsequent decision Commission Decision 2010/56/EU (OJ L 32, 4.2.2010) that cleared the accounts for financial year 2008 of those paying agencies that were disjoined in April 2009.[53][54]

Commission Decision 2009/367/EC (OJ L 111, 5.5.2009)

Commission Decision 2010/56/EU (OJ L 32, 4.2.2010)

During financial year 2009 Member States recovered EUR 167.3 million and the outstanding amount still to be recovered from the beneficiaries at the end of that financial year was EUR 1 136.2 million. Table AG6 provides an overview of the recovered, irrecoverable and outstanding amounts at the level of beneficiaries at the end of financial year 2009.

Table AG6: financial information on recovery (EAGF, EAFRD, TRDI)

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The financial consequences of non recovery for cases dating from 2005 or 2001 was determined in accordance with the 50/50 rule mentioned above by charging EUR 22.8 million to the Member States concerned Commission Decision 2010/258/EU (OJ L 112, 5.5.2010) . Moreover, EUR 20.3 million was borne by the EU budget for cases reported irrecoverable during financial year 2009. For those paying agencies for which the 2009 accounts were disjoined from the financial clearance decision, a further EUR 11.9 million will be charged by subsequent Commission Decisions .[55]

Commission Decision 2010/258/EU (OJ L 112, 5.5.2010)

Due the application of the 50/50 mechanism since its introduction in 2006 the amount outstanding from the Member States towards the EU budget was reduced to EUR 830 million Amount includes updated financial information provided by Member States for Financial Year 2009. .[56]

Amount includes updated financial information provided by Member States for Financial Year 2009.

During the years 2007-2009 the Commission was auditing the correct application of the new clearance mechanism through 15 on the spot controls covering 14 paying agencies in 11 Member States. In general the Member States' authorities have adequate procedures in place to protect the financial interest of the European Union. Deficiencies found during these on the spot controls are being followed up in the context of conformity clearance procedures.

5.4. Specific analysis

5.4.1. Introduction

The statistical annex introduces this year some new rates and levels. The rates and levels that are used are the Irregularity Rate (IrR), Fraud Rate (FrR), Fraud Amount Level and Fraud Frequence Level (FFL) IrR, FrR, FAL and FLL are explained in paragraphs 1.24 – 1.2.5. .[57]

IrR, FrR, FAL and FLL are explained in paragraphs 1.24 – 1.2.5.

To calculate reliable rates and levels, a time frame should be used that can be considered as "finalised". The financial year 2009 cannot yet be used to calculate rates and levels as a large number of irregularities concerning the financial year 2009 will be reported in the coming 3 – 5 years. The same counts for the period 2006 – 2009. Member States still need to finalise audits and to report detected irregularities.

To determine reliable rates and levels, a financial year should be selected that can be considered, from an irregularity reporting point of view, as "closed" or "finalised".

The financial year 2004 can be considered, from an irregularity reporting point of view, as finalised In next years report, the financial year 2005 will be used to determine the different rates and levels. . 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. Tables AG7, AG8 and AG9 also support the assumption that the financial year 2004 can be considered as finalised. Most of the cases were reported in the first 2-3 years after the expenditure. Almost no cases were reported in the last 2 years. [58]

In next years report, the financial year 2005 will be used to determine the different rates and levels.

The total 2004-expenditure was about EUR 43 billion. Member States reported 2°216 cases of irregularities with a total amount affected of about EUR 99 million, which implies an overall irregularity rate of 0.23%. Member States classified 73% of these cases as "irregularity" or as "suspicion of fraud". 608 cases were not classified. The largest part of these "non-classified-cases" was reported by Germany and Spain. Both were not using the electronic reporting system at that time and did not yet update all their 2004-cases.

9 Member States (EU-25) classified 37 cases as "suspicion of fraud", which is 1.67% of the total number of reported cases and 2.30% of the total number of classified cases. More than 60% of the suspected-fraud-cases were reported by Italy. The total amount affected by suspected-fraud-cases is about EUR 14.9 million, which would imply an overall fraud rate of 0.03%. The fact that more than 60% of the cases were reported by only 1 Member State makes already clear that one cannot speak about an overall fraud rate or EU-25-rate.

Approximately 70% of the 2004-expenditure concerns 3 sectors:

1. budget chapter 050203 : direct payments for arable crops ± EUR 17 billion

2. budget chapter 050302 : beef and veal ± EUR 7.8 billion

3. budget chapter 050401 : rural development ± EUR 4.7 billion

These 3 sectors will be used to make a more precise estimate of the different rates and levels.

Member States reported 1,471 cases for these 3 sectors, which is ± 66% of the total number of cases reported for the financial year 2004. In ± 82% of these cases, Member States classified a case as "irregularity" or as "suspicion of fraud".

5.4.2. Sector 050203: direct payments for arable crops

Table AG7 provides an overview of the cases that have been reported by Member States concerning the 2004-expenditure for the sector "direct payments for arable crops" (budget chapter 050203).

Table AG7: direct payments for arable crops – rate and levels

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The second column of the left hand side provides an overview of the 2004-expenditure per Member State. Only those Member States that had a 2004-expenditure are shown. The total expenditure was about EUR 17 million. In the third column the total amount affected by irregularities can be found.

The irregularity rates (IrR) can be found in the fourth column of the left hand side. The overall rate is 0.06%. Italy has the highest rate: 0.36%. Austria, Spain and Luxembourg did not report any cases of irregularities for this sector, therefore, their irregularity rates are 0%.

The right hand side part of the table provides an overview of the years in which the irregularities concerning the 2004-expenditure have been reported. Member States reported in total 307 cases of irregularities. 106 of these cases were already reported in 2004. The highest number was reported in 2005: 172 cases.

A downfall of the number of reported cases can be seen in the period 2006 – 2009. This is also logic. Irregularities are normally reported in the first years after the discovery of an irregularity. The sharp downfall of cases in the period 2006 – 2009 confirms, from an irregularity reporting point of view, that the financial year 2004 can be considered as finalised.

France had the highest expenditure, e.g. more than EUR 5.1 billion, and reported a total amount affected by irregularities of about EUR 0.6 million. This leads to an irregularity rate of 0.01%. Almost all cases were reported in 2005. Only 1 case was reported in 2006. No more cases were reported in the period 2007 – 2009, therefore, it can be expected that no cases of irregularities will be reported anymore.

Germany reported in the years 2004, 2005 and 2006 respectively 28, 16 and 2 cases. No cases were reported after 2006. Germany reported a total amount affected by irregularities of about EUR 0.9 million. This means an irregularity rate of 0.03%.

Rather high are the irregularity rates of Italy, the Netherlands and Ireland, respectively 0.36%, 0.26% and 0.22%.

No irregularities were reported by Austria, Spain and Luxembourg.

The middle part of table AG7 contains the rates and levels linked to suspected fraud.

Only 1 Member State reported suspected-fraud-cases: Italy. It reported 4 cases with a total amount affected of about EUR 6.6 million. The fraud rate for Italy is 0.35%.

The EU-25 FrR would be 0.04%. Be aware that only 1 Member State reported suspected-fraud-cases. This makes immediately clear that it is hard to speak about an EU-25 fraud rate. It is better to speak about the Italian fraud rate or even better of the fraud rates of the regions or provinces that reported the suspected-fraud-cases.

The FAL is almost 98% now almost the total irregular amount was linked to suspected-fraud-cases. The FFL is 50% now 4 out of 8 cases were classified