[pic] | COMMISSION OF THE EUROPEAN COMMUNITIES |

Brussels, 6.7.2007

SEC(2007) 938

COMMISSION STAFF WORKING DOCUMENT Annex to the

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Protection of the financial interests of the Communities – Fight against fraud – Annual report 2006 STATISTICAL EVALUATION OF IRREGULARITIES - OWN RESOURCES, AGRICULTURE, STRUCTURAL MEASURES, PRE-ACCESSION FUNDS -YEAR 2006 [COM(2007) 390 final][SEC(2007) 930]

TABLE OF CONTENTS

1. THE SITUATION IN 2006 4

1.1. INTRODUCTION 4

1.2. Key Facts 6

1.2.1. Traditional Own Resources 6

1.2.2. Agriculture 6

1.2.3. Structural Measures 6

1.2.4. Pre-accession Funds 7

PART I - REVENUES 8

2. TRADITIONAL OWN RESOURCES (ANNEXES 1-10) 8

2.1. Reporting Discipline 10

2.2. General Trends 12

2.2.1. Method of detection 12

2.2.2. Types of irregularity and fraud 13

2.2.3. Amounts involved 13

2.2.4. Impact on the budget 14

2.2.5. Data main sectors TOR 14

2.3. Specific Analysis 14

2.3.1. Specific facts TOR 14

2.3.2. Irregularity vs Suspected Fraud 15

2.4. Conclusions 15

PART II - EXPENDITURE 17

3. AGRICULTURAL EXPENDITURE (Annexes 11-13) 17

3.1. Reporting discipline 19

3.2. General Trends 23

3.2.1. Method of detection 23

3.2.2. Types of irregularity 24

3.2.3. Amounts involved 26

3.2.4. Impact on the budget 27

3.3. Specific Analysis 29

3.3.1. Analysis of support measures 29

3.3.2. Irregularity versus Suspected fraud 35

3.4. Recovery and penalties 37

3.5. Conclusions 39

4. STRUCTURAL MEASURES (Annexes 14-17) 42

4.1. Reporting Discipline 42

4.2. General Trends 47

4.2.1. Detection methods 49

4.2.2. Types of irregularity 49

4.2.3. Amounts involved 50

4.2.4. Impact on budget 51

4.2.5. Trends related to the programming period 2000-2006 52

4.3. Specific analysis 55

4.3.1. Irregularities affecting the different funds 55

4.3.2. Irregularities vs suspected frauds 57

4.3.3. Irregularities detected before payment 60

4.4. Recovery 61

4.5. Conclusions 62

5. Pre-accession funds (Annexes 18-21) 64

5.1. Reporting discipline 64

5.2. General Trends 67

5.2.1. Method of detection 68

5.2.2. Types of irregularity 69

5.2.3. Impact on the budget 71

5.3. Specific analysis 73

5.3.1. Irregularity vs Suspected Fraud 74

5.4. Recovery 75

5.5. Conclusions 77

ANNEXES 78

THE SITUATION IN 2006

INTRODUCTION

Community legislation provides for the protection of the Community’s financial interests in all areas of activity[1]. Member States are required to notify the Commission of evidence of fraud and other irregularities. This need is particularly evident in those sectors of the Community budget where the main responsibility for management 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 EUR 4,000 for agriculture[2] or more than EUR 10,000 for traditional own resources, structural and cohesion funds. This applies at all stages in the procedure for recovering monies unduly paid or not received.

Regulation No 595/91 specifies the requirement for the agriculture sector, Regulations Nos 1681/94[3] and 1831/94[4] for structural measures, as amended, respectively by Regulations Nos 2035/2005 and 2168/2005, and Regulation No 1150/2000 for own resources. 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 Accession states.

The European Parliament and the Council adopted a series of Regulations introducing a new system for the Structural Funds for the new 2007-2013 programming period[5]. The rules on reporting irregularities to the Commission have been retained, but the communication procedure is now part of the implementing Regulations[6] rather than a separate Regulation, as was previously the case. The old Regulations have been repealed, but will continue to apply with reference to former programming periods.

The provisions to be followed are mostly based on the Commission Regulation (EC) No 1681/1994. Member States are required to report irregularities under Article 3 of this regulation (for own resources the relevant provisions are contained in Article 6, paragraph 5) within two months of the end of each quarter. Under Article 5 (again, Article 6, paragraph 5 for own resources) they have to submit updates of the cases communicated and relevant information about the financial, administrative and judicial follow-up.

The distinction between irregularities and fraud is that fraud is a criminal act that can only be determined by the outcome of judicial proceedings[7]. 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 is influenced by the accuracy and timeliness of the notifications made by the Member States.

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

The Commission works in close cooperation with the Member States to improve the notification system for irregularities, in particular to clarify the concepts of “fraud” and “irregularity”[8] and as a result, attempts to measure the possible economic impact of fraud in certain sectors have been made. However, for the reasons outlined above, the figures presented below should be interpreted with caution. It would be particularly inappropriate to draw simple conclusions about the geographical distribution of fraud or on the efficiency of the services which contribute to the protection of financial interests .

Key Facts

Annex 22 gives an overview of all irregularities communicated by Member States under Regulation No. 595/91 for the agriculture sector, Regulations Nos 1681/94 and 1831/94 for structural measures and Regulation No 1150/2000 for own resources.

In general, the number of irregularities notified for the year 2006 has slightly decreased by 0.3%.

The total number of irregularities has increased for agriculture, cohesion and pre-accession funds. It has decreased for own resources and the structural funds.

However, the total amounts affected by irregularities notified for the year 2006 has increased by 11.5%.

The total amounts affected by irregularities have increased for own resources, structural and cohesion funds. It has decreased for agriculture and pre-accession funds.

The following paragraphs will provide an overview concerning the different sectors of the budget analysed in this document.

Traditional Own Resources

In 2006, the number of cases of irregularities communicated by the Member States decreased from 5,943 to 5,243. However, the amount of TOR increased from EUR 328 million to EUR 353 million.

Communications from the ten new Member States have continued to grew since their accession in 2004. This is a result of increasing familiarity with the requirements of the reporting system.

Agriculture

In 2006, OLAF processed 15,513 communications under Regulation (EEC) No 595/91. A large number of these communications, i.e. 12,264, were updates of cases that had been reported prior to 2006.

Member States reported 3,249 new irregularities (under Regulation (EEC) No 595/91) compared with 3,193 irregularities in 2005. The total amount affected in 2006 was about EUR 87 million, as against approximately EUR 102 million in 2005.

Irregularities notified in this sector represent only 0.17% of the agricultural budget.

Structural Measures

In 2006, Member States reported 2,988 irregularities under Regulation (EC) No 1681/94 which covers the four Structural Funds and 228 under Regulation (EC) No 1831/94 on the Cohesion Fund. The total amount affected by irregularities in 2006 was about EUR 703 million, EUR 517 million of which concerned the Structural Funds and EUR 187 million related to the Cohesion Fund. Irregularities reported in this sector were equivalent to 1.83% of the budget allocated to structural measures in 2006.

Since the establishment of the information system of irregularities (1994), Member States have reported 22,371 irregularities, of which 21,574 related to the Structural Funds and 797 to the Cohesion Fund.

Pre-accession Funds

In 2006 Member States and Acceding Countries sent to OLAF 1,207 reports, 384 of which first communications and 823 were updates concerning all pre-accession funds. The total amount affected by irregularities reported in 2006 was EUR 12.3 million, of which from PHARE EUR 6.9 million (198 irregularity reports), SAPARD EUR 4.3 million (160) and ISPA EUR 1.2 (26).

In 2006 the number of cases reported (first communications) increased by 14.2% on the previous year.

PART I - REVENUES

TRADITIONAL OWN RESOURCES (ANNEXES 1-10)

The Community must have access to Traditional Own Resources ('TOR')[9] under the best possible conditions. In conformity with Regulation (EC, Euratom) No 1150/2000[10] Member States are responsible for making available to the Commission, within the deadlines set, TOR that they have established. The established amounts that relate to recovered or unchallenged guaranteed customs or agricultural duties and which are to be made available are entered into the so called A-account . An exception is made for TOR established by a Member State but not yet recovered and for which no security has been provided or where the established amount has been disputed. Member States may enter these TOR amounts in a B-account and not make them available until they are actually recovered in accordance with the rules. Most fraud and irregularity cases relate to these B-account entries.

Monitoring of establishment and recovery of TOR

In order to get the right picture of Member States' activities in recovering TOR, it is important to keep in mind that more than 95% of all amounts of TOR established are subsequently recovered without particular problems. They are entered in the A-account and made available to the Commission. This covers most of the 'normal' import flows where the release for free circulation gives rise to a customs debt. The remaining items are entered in the B-account. These proportions should be borne in mind when evaluating and appreciating Member States' recovery activity. In return for performing this task, and to support sound and efficient management of public finances, Member States may keep 25% of the amounts involved.

In its capacity as Authorising Officer responsible for executing the EU budget in revenues, the Commission (DG Budget as delegated Authorising Officer) monitors Member States’ activities concerning establishment and recovery of TOR in several different ways.

The following three methods are used:

1. Overall monitoring of recovery of TOR under the write-off procedure;

2. Regular inspections in Member States of the establishment and recovery of TOR and B-account entries;

3. Specific monitoring, in close cooperation with OLAF, of some individual cases of the follow-up of recovery action by Member States in individual cases of Mutual Assistance with significant financial impact.

These three methods allow the Commission to monitor Member States' performance without interfering too much in the day to day operations of the Member States.

Procedure for managing Member States' requests for write-off

Member States must take all requisite measures to ensure that the amounts corresponding to the entitlements established are made available to the Commission. This requirement is shown in Article 17(1) of Regulation No 1150/2000. According to that same article, Member States are only released from this obligation in case of established entitlements which prove irrecoverable either:

(a) for reasons of force majeure ; or

(b) for other reasons which cannot be attributed to them.

Amounts of established entitlements shall be declared irrecoverable by a decision of the Member State finding that they cannot be recovered. Debts may be declared irrecoverable by a Member State decision at any time, or the TOR must be deemed irrecoverable by the Member State at the latest five years from the date on which the amount was established, or in the event of an administrative or judicial appeal, the final decision was given, or the last part-payment of an established amount was made, whichever is the later. However, where the amount of TOR written-off exceeds a threshold of EUR 50,000 the write-off must be reported to the Commission. For amounts under EUR 50,000, Member States do not have to communicate these cases to the Commission on their own initiative. But the Commission can ask for such a communication when it considers it difficult to evaluate a case during an inspection when these cases are regularly scrutinised.

An amendment to Regulation No 1150/2000 in 2004[11] introduced a 5-year timeframe within which a Member State has to provide the Commission with information on amounts of established entitlements of TOR deemed irrecoverable. As a result it is expected that before 2009 there will be a marked increase in requests by Member States for write-off of established but (deemed) irrecoverable TOR amounts. The increase will consist of old cases that have not yet been reported to the Commission, but that meet the 5-year deadline for application of the write-off procedure. DG Budget is prepared to deal with the increase anticipated in the number of cases in the future. A new IT-application called WOMIS[12] is to be introduced in the near future to support Member States and DG Budget in managing the write-off requests.

In 2006 there were 160 write-off requests communicated to the Commission by 9 Member States, amounting to EUR 57,571,144.02. In total, 162 requests were processed in 2006[13] with the following result:[14]

. Table OR 1: Write-off requests treated in 2006 – results

Commission position | cases | % cases | € | % amount |

NON SUITABLE EXEMPTION REQUEST | 11 | 5.60% | 2,887,595.06 | 8.90% |

WRITE-OFF ACCEPTED | 68 | 34.90% | 10,089,853.73 | 31.30% |

REQUIRED ADDITIONAL INFORMATION | 57 | 29.20% | 14,655,135.92 | 45.50% |

WRITE-OFF REFUSED | 59 | 30.30% | 4,604,016.59 | 14.30% |

TOTAL | 195* | 100% | 32,236,601.30 | 100% |

* During 2006, there were 33 cases partially accepted, classified as not suitable, refused or sent back to Member States for additional information. For this reason the 162 cases gave rise to 195 "apparent" positions.

Examination of Member States diligence constitutes a very effective mechanism for gauging their activity in the field of recovery and encourages national administrations to intensify their recovery actions in terms of regularity, efficiency and effectiveness, since a lack of diligence leading to failure to recover will result in Member States having to foot the bill.

Particular cases of failure of recovery of TOR by Member States

Where TOR are not established because of an administrative error by a Member State the principle of financial responsibility[15] is applied by the Commission. During 2006 EUR 33,412,388.57 was paid by Member States, separate from belated interest, because of this principle.

All together the cases of financial responsibility DG Budget has been dealing with, until end 2006, represent nearly EUR 113 million. This money is transferred back to the Member States in proportion to their contribution to the EU budget; the main objective therefore is to encourage individual Member States to step up the performance of their administrations and to address weaknesses leading to a loss of TOR and national taxes.

Reporting Discipline

Under Article 6(5) of Regulation No 1150/2000, Member States are required to communicate to the Commission, via the OWNRES system[16], cases of fraud and irregularity where the TOR-amounts exceed EUR 10,000. This reporting activity serves a clear goal: to inform the Budgetary Authority of the state of play relating to fraud and irregularities in TOR. This political objective should motivate all stakeholders to take this activity very seriously. The OWNRES-database is an important tool for providing data for global analyses of fraud and irregularities and presents valuable information to the budgetary authority[17]

Because all TOR-amounts exceeding EUR 10,000 in the B-account represent an irregularity (fraud included) by definition a match between the two from the perspective of the B-account should be 100%[18]. However comparison in 2003 between the B-account and OWNRES did not give this result, so the Commission drew attention to this in ACOR[19] meetings. Since 2003 comparisons have improved from 30% agreement (2003) up to 90% by the end of 2006. Member States' efforts to improve the accuracy and completeness of OWNRES are thus visible. Nonetheless the database can not be considered fully reliable yet using this comparative measure, if the equation is extended to incorporate cases that have not been subject to establishment of a debt, for example smuggled cigarettes that are seized and subsequently confiscated and for which no customs debts arises (otherwise in these circumstances the duties would be transformed into a kind of – extra – penalty). Regarding this last category, the data contained in OWNRES is far from trustworthy. Member States should address this shortcoming urgently[20].

Moreover, one should be wary of trying to use OWNRES as a source of data on fraud alone isolated from irregularity. This is because (until a Court judgement is obtained) the distinction between fraud and irregularity has usually been made on subjective grounds. This means there are great variations between national administrations and so the results cannot be relied upon.

With these considerations in mind, please find some analyses hereunder.

Year of detection versus year reported

Cases should be included in OWNRES at the moment of first discovery of the irregularity or fraud case. As a result, the year of registration and the year of discovery of the irregularity or fraud can diverge. Member States continually add new cases and update existing cases. This means the query-information generated by OWNRES is dynamic. For instance, the number of irregularities and fraud in last years report was 4,982 cases whereas the number of cases in 2005 at this moment is 5,943 cases[21]. Such developments are inherent to the system used.

General Trends

The number of cases communicated to OWNRES decreased in 2006 by 12% when compared to 2005 (from 5,943 to 5,243), but the amount of TOR increased by over 7% (up from EUR 328 million to EUR 353 million )[22]. The higher base-level of the number of cases compared to 2003 can be explained by Member States reporting more of their cases to OWNRES, the entry of cases of belatedly discharged Transit operations and the accession of new Member States. The number and proportion of belatedly discharged Transit operations decreased compared to 2005 (by well over a third[23]). Communications from the ten new Member States have continued to grow since their accession in 2004 (2006 shows a 47% growth compared with 2005 and 326% compared with 2004). If the comparisons are made using amounts of TOR the growth rates are 123% and 313% respectively. This is a result of increasing familiarity with the requirements of the reporting system.

In total, for the period 1989-2006, the OWNRES database contains 38,138 cases[24]. Significant changes in the number of registrations in 2006 compared with 2005 can be seen for Belgium (-44%) and the Netherlands (-25%). Significant changes in amounts can be seen in Germany (-26%), Italy (+122%), Netherlands (+81%) and Spain (-44%).

Method of detection

Various methods of detection may have revealed the irregularity or fraud. Judging from the 2006 data the most fruitful methods for are the primary national inspections (either physical inspections or inspections of documents – the latter category featuring most frequently) and the national post-clearance inspections .

Chart OR 1: Method of detection 2005-2006

[pic]

Primary national inspections feature in 38% of the discovered cases whereas the post clearance inspections cover 42%. It will be interesting to see whether the shift from primary to post-clearance inspections which can be seen in 2006 is the beginning of a trend related to ongoing changes in declaration procedures. The relative importance of inspections by anti-fraud services decreased slightly from 9.4% in 2005 down to 7.6% in 2006.

Types of irregularity and fraud

A breakdown of frauds and irregularities by customs procedure[25] and by type confirms that release for free circulation is the customs procedure most commonly affected by fraud. Smuggling, misdescription and false declarations (incorrect value, origin, preferential arrangements) are the most important types of fraud.

The goods (defined by the first two numbers of the CN-code) most affected by fraud and irregularities in 2006, as in previous years, are tobacco products (CN 24) and TVs and parts etc. (CN 85). Sugar (CN 17) decreased in importance compared to 2005 as did fish (CN 03), glass and glassware (CN 70) and optical instruments (CN 90), whereas meat (CN 02), engines and parts (CN 84), inorganic products (CN 28) and oils and fats (CN 15) came up. The textile sector (CN 61 and CN 62) remains relatively stable with CN 62 involving EUR 10.3 million duty in 11th place in 2006[26].

Table OR 2: Top 10 of first two numbers of CN Code most affected by irregularities – 2005-2006[27]

2005 | 2006 |

AT | 57 | 2 | 59 |

BE | 25 | 6 | 31 |

CZ | 46 | 46 |

DE | 321 | 321 |

DK | 3 | 16 | 19 |

EE | 11 | 11 |

EL | 173 | 173 |

ES | 428 | 428 |

FI | 47 | 1 | 48 |

FR | 98 | 98 |

HU | 97 | 97 |

IT | 380 | 364 | 744 |

LT | 26 | 26 |

LU | 3 | 3 |

LV | 5 | 5 |

MT | 2 | 2 |

NL | 182 | 182 |

PL | 101 | 56 | 157 |

PT | 458 | 458 |

SE | 1 | 70 | 71 |

SI | 7 | 7 |

SK | 7 | 7 |

UK | 8 | 215 | 223 |

TOTAL | 1,606 | 321 | 1,289 | 3,216 |

Timely reporting

As far as the timely reporting of the irregularities is concerned, the situation is improving. Chart SF2 refers to the timely reporting of irregularities as required by the regulations. It shows the proportion of communications that has been reported on time and after the deadline. In general, the situation is improving in comparison to previous years; there is however still a number of countries which send an important part of their communications well after the deadline indicated in the legislation being two months after the end of each quarter.

Member States need to put more attention on this aspect.

The increased use of the electronic reporting system should also support further improvements in the future.

Chart SF 2: Percentage of irregularities reported after the deadlines

[pic] Year of detection vs year of reporting

Another indicator to measure ‘time compliance’ is the level of reporting in 2006 of cases detected in 2005 and 2006. In the Structural Measures sector, in which decentralisation can be extremely accentuated, the communication flow may be more complicated than in other sectors. For this reason only irregularities detected before 1st January 2005, or for which no date of detection has been communicated, are considered as indicating non compliance.

Chart SF 3: Percentage of irregularities reported within 2 years after being established

[pic]

As shown on chart SF3, on average, about 85% of all irregularities reported in 2006 were established after the indicated date. The result is slightly better than in 2005 (84%) and Member States are encouraged to keep on this path.

Reporting on time is indispensable to make it possible for the Commission to use the information contained in the communications correctly. Reporting quickly the detected irregularities also shows that the Member State is taking all appropriate measures in order to recover the unduly paid amounts.

Personal data

Chart SF4 indicates another aspect of the reporting discipline. It shows the percentage of the communications for which personal data have been reported or not.

Chart SF 4: Percentage of communications containing nominal data

[pic]In around 12% of the communications on irregularities the obligation to provide those information is not fulfilled. The result is greatly influenced by Germany, which did not report at all the identity of the natural or legal persons involved[46]. For other Member States, the situation is very satisfactory and only Czech Republic and Poland need to slightly improve.[47]

Qualification of irregularity

As from 1st January 2006, following the amendments introduced by Regulations Nos 2035/2005 and 2168/2005, Member States must indicate whether the reported irregularity can be considered a “suspicion of fraud” or not. The information is of high value and importance in order to establish the impact of “suspected frauds” on the total reported irregularities (for more details, see infra paragraph 4.3.2). Table SF5 provides an indication of the Member States’ compliance of this aspect.

Table SF 2: Compliance per Member State in relation to the qualification of irregularities

MEMBER STATES | N° of qualified irregularities | N° of not qualified irregularities | TOTAL |

AT | 57 | 2 | 59 |

BE | 25 | 6 | 31 |

CZ | 46 | 46 |

DE | 2 | 319 | 321 |

DK | 3 | 16 | 19 |

EE | 6 | 5 | 11 |

EL | 173 | 173 |

ES | 428 | 428 |

FI | 47 | 1 | 48 |

FR | 98 | 98 |

HU | 95 | 2 | 97 |

IT | 378 | 366 | 744 |

LT | 26 | 26 |

LU | 3 | 3 |

LV | 3 | 2 | 5 |

MT | 2 | 2 |

NL | 181 | 1 | 182 |

PL | 100 | 57 | 157 |

PT | 458 | 458 |

SE | 24 | 47 | 71 |

SI | 4 | 3 | 7 |

SK | 7 | 7 |

UK | 9 | 214 | 223 |

TOTAL | 1,639 | 1,577 | 3,216 |

Almost 51% of the reported irregularities was qualified by Member States. For the first year of the implementation of the new requirement, it can be considered as a positive result, but Member States need to improve further more in the next years.

Conclusion

In general, it can be stated that the overall quality of the reports has been improving steadily, thanks to the amendments introduced through the Regulation (EC) No 2035/2005 and 2168/2005 such as the definition of terms ’’irregularity’’ or ‘’suspicion of fraud’’. However, there is a need for a more uniform interpretation of what should be reported and what not. If the data reported are comparable, the feedback to the Member States can be further improved as well as the effectiveness of fraud prevention. A strong cooperation between Member States and the Commission is needed to find appropriate solutions in this respect.

General Trends

Overall trend

In 2006 the number of irregularities reported decreased by around 10% as compared to the year before. However, an increase in the irregular amounts of about 8% was observed, the irregularities reaching EUR 703 million (including the Cohesion Fund). As far as the number of irregularities communicated is concerned, it has reached its peak in 2002 with more than 4,500 irregularities notified. This situation was due to the closure of the programming period 1994-1999. As shown in chart SF5, since 2002 the number of irregularities has fluctuated between 2,500 and 3,600. In 2006, the number of irregularities reported decreased significantly in comparison to the situation in 2005. That was caused mostly by the change in the legislation. The Regulations Nos 2035/2005 and 2168/2005 amending, respectively, Regulations Nos 1681/94 and 1831/94 raised the reporting threshold from EUR 4,000 to EUR 10,000.

Chart SF 5: 1998-2006 trend concerning number of reported irregularities and irregular amounts

[pic]Still, even if the number of irregularities decreased, the irregular amounts grew as well as their relative impact of irregularities on the overall Structural Actions budget in the last 9 years (for the detailed data, see Annex 14). The percentage in 2006 (1.83%) is still lower that the peak number for 2002 being 2.01%. It has however increased since 2005 and that increase is even more significant in real numbers if we take into consideration the fact that the total Structural Actions budget has grown as well.

It should be considered, under this respect that the decrease in number of irregularities is lower than could be expected. This is due to the fact that, contrary to previous years, the number of reported irregularities from the new Member States is increasing as could have been easily foreseeable. The increase of irregularities from the New Member States, from Italy and concerning the Cohesion Fund is the likely reason for the increase of the reported irregular financial amounts.

The difficulty in interpreting chart SF5 consists in the fact that projects financed through the Structural Actions budget are implemented over several years and the number of irregularities and related financial impact is only calculated on the reporting year. It can also happen that Member States still report irregularities referred to the Programming Period 1994-1999 and these are included in the chart too (for an analysis per programming period, see infra paragraph 4.2.5)

Furthermore, only some of these irregularities have real financial consequences and constitute a specific potential loss to the European budget. In fact, some irregularities are detected before any payment is made and the question of recovery does not arise (for more details see infra paragraph 4.3.3).

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

Trend related to Member States

Like in previous years, the irregularities are not distributed equally among Member States.

Taking into consideration how the irregularities are split among Member States, like in previous years the biggest countries and those with the highest overall funding from the Structural Actions report the most irregularities. In 2006, the highest number of irregularities was reported by Italy (744) Portugal (458), Spain (428) and Germany (321). As for Germany, a significant decrease was observed (-73%) as in 2005 this country reported almost 4 times more irregularities (1,208). The numbers increased notably both for Italy (563 in 2005 and 751 in 2006; +32%) and Portugal (220 in 2005 and 458 in 2006; +108%).

In the analysis of the particular funds, the irregularities are split differently between the Member States than in the total number of cases. For example, in the European Social Fund (ESF) irregularities, the Netherlands come second after Portugal. The bulk of the irregularities for the Netherlands originate from this fund[48]. In the European Regional Development Fund (ERDF) the countries reporting the most irregularities are again Italy and Germany with the UK in the third position. In the European Agriculture Guarantee and Guidance Fund – Guidance section (EAGGF-Guidance), the Commission received a relatively high number of communications from Poland[49]. The EAGGF-Guidance irregularities stand up for more than one third of the Polish irregularities.

Finally, concerning the Cohesion Fund, Greece alone reported more than 50% of the total irregularities for this fund. As in 2005 Greece had communicated more than 70% of the irregularities related to this Fund, it is positive that also the other Member States benefiting from this fund have started reporting a more “balanced” number of irregularities. In particular, Spain reported 82 irregularities, with an increase of more than 400% in relation to last year (82 irregularities in 2006 and 16 in 2005).

In 2006, only Ireland and Cyprus reported no irregularities. It should be stressed that too few irregularities reported by a given Member State could be a cause for concern.

Detection methods

Table SF3 shows the most frequent detection methods and the related detected amounts.

Table SF 3: detection methods

Code | Description | Frequency | Detected amounts (in €) | Average detected amounts (in €) |

206 | Control of documents | 970 | 206,157,012 | 212,533 |

999 | Other facts | 514 | 116,936,865 | 227,504 |

230 | On the spot control of achievement of project or action | 305 | 59,023,565 | 193,520 |

107 | Judicial enquiry | 279 | 114,198,350 | 409,313 |

209 | Control on the premises of the company | 261 | 44,726,207 | 171,365 |

320 | Ex post control | 192 | 36,850,280 | 191,929 |

101 | National administrative or financial control | 170 | 13,710,182 | 80,648 |

104 | National fiscal control | 116 | 22,773,835 | 196,326 |

Two aspects need to be underlined. In the first place the excessive use of a generic description of the detection method used: “other facts”. Secondly, the extremely high average amounts detected through “Judicial enquiries.

Types of irregularity

Differences remain among Member States as to the types of irregularities reported and, to a certain extent, these are consistent with last year. The majority of cases involve irregularities of an “administrative” nature that are normally detected in the course of the routine documentary checks which are conducted before any payment of european money is made. To demonstrate this, among the most frequent types of irregularity reported by Member States are the “not eligible expenditure” and “missing or incomplete supporting documents”.

As in previous years, Italy was the country where the most falsifications of documents were detected. Italy was not the only MS to report this kind of situation (similar cases were also reported by Poland, Germany, United Kingdom, Portugal and Latvia).

Table SF4 shows the most frequent types of irregularities together with the amounts involved and the indicative average amount:

Table SF 4: Most frequent types of irregularities reported by Member States

Code | Description | Frequency | Amounts involved (in €) | Indicative average amounts (in €) |

A | B | C | D[50] | E = D / C |

325 | Not eligible expenditure | 760 | 174,250,779 | 229,277 |

999 | Other irregularities | 302 | 99,512,341 | 329,511 |

210 | Missing or incomplete supporting documents | 209 | 15,608,261 | 74,681 |

614 | Infringement of rules concerned with public procurement | 196 | 103,841,401 | 529,803 |

612 | Failure to respect other regulation/contract condition | 189 | 26,496,392 | 140,193 |

213 | False or falsified supporting documents | 185 | 75,308,200 | 407,071 |

812 | Action not carried out in accordance with rules | 128 | 9,855,556 | 76,997 |

601 | Failure to respect deadlines | 115 | 22,921,005 | 199,313 |

It should be noted that due to the reporting method a single case communicated to OLAF may contain more than one type of irregularity. Figures in table S13 are based on how many times the type of irregularity has been communicated alone and how many times it has been reported together with other types of irregularity. The amount involved sums up all the values related to that specified type[51].

The “real” total amounts reported are those in annex 14 and 15.

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

Amounts involved

As far as amounts per country are concerned, they are more or less in line with the number of the reported cases, with Italy, Germany, Spain and Portugal reporting the highest financial amounts. Greece however comes in the second place with EUR 131 million of irregular amounts and this is due mainly to the irregularities in the Cohesion Fund[52].

On the contrary, the Netherlands have reported relatively lower irregular amounts in relation to the number of irregularities communicated and this is due to the fact that the bulk of their communications are related to the ESF where the average financial amounts involved in irregularities are much lower.

However, the number of reported irregularities and related amounts is linked, to a certain extent, to the budget that is allocated to each Member State, as showed in chart SF6. This trend is in general confirmed, with two important exceptions.

On one extreme, there is an absolute domination of Italy in both the numbers and the amounts indicated. On the other, in relation to the budget allocated, the number of irregularities and related amounts reported by France appear far too low.

Those huge differences between Member States in terms of number of irregularities and amounts affected do not necessarily mean that one country is more fraudulent than another. The reason for the high number of irregularities in the given country could be as well a higher number of controls carried out in the analysed year.

However, strong differences in reporting further stress the need to undertake more efforts in view of an improved uniform application of the reporting obligation.

Chart SF 6: Number of cases and amounts affected by irregularities per Member State (in the order of increasing SF budget)

[pic]

Impact on budget

As from 2002 the impact of reported irregularities has been fluctuating between 2.0% (in 2002) and 1.6% (in 2003), as showed in chart SF7.

This circumstance confirms that a certain consistency has been reached in the reporting mechanisms established by the Member States.

However, there is a great difficulty in correctly analysing this information, as the reported irregularities refer to programmes and projects that are of a multi-annual nature and, furthermore, reported irregularities can refer to different programming periods (for more details see paragraph 4.2.5 below).

Chart SF 7: Impact of irregularities on SF budget

[pic]

Trends related to the programming period 2000-2006

In 2006, about 91% of the reported irregularities were referred to the programming period 2000-2006, as showed in chart SF8.

This is to be expected as the attention of the controls is naturally focussed on running projects rather then closed operations.

Chart SF 8: Distribution of reported irregularities per programming period

[pic]

Chart SF9 shows the trend of reported irregularities (both in terms of numbers and financial amounts involved) referred to the 2000-2006 round alone, as from the year 2000.

Irregularities related to the current programming period have been steadily increasing year after year. This is due to the fact that controls on the projects also progressed with the advancing of the financed operations. It is worth remembering that the projects financed through the Structural funds are implemented over several years.

Chart SF 9: 1998-2006 trend concerning number of reported irregularities and irregular amounts – Programming Period 2000-2006

[pic]

Chart SF10 puts in comparison the trend related to the programming period 2000-2006 with that of the previous round in terms of numbers of reported irregularities.

Chart SF 10: 1998-2006 trend concerning number of reported irregularities and irregular amounts – Programming Period 2000-2006

The chart shows that the number of irregularities related to the current programming period reported in its first seven years of implementation is much higher than that related to the 1994-1999 Programming Period.

This is due to a number of reasons. The increased resources allocated to the structural measures, the higher number of Member States that benefit from them, but also a better understanding of the reporting obligations from national authorities.

This difference between the two programming periods also induces to foresee that the peak referred to the year of closure of the current programming period will be probably lower than that of the previous round (in correspondence with Year 9 on chart SF10).

Chart SF11 shows how the irregularities reported in 2006 and related to the programming period 2000-2006 were distributed among the different objectives[53].

Chart SF 11: distribution of irregularities related to PP2000-2006 according to objective – 2006

[pic]

The distribution of the irregularities is very much in line with the allocation of the financial resources among the different objectives.

Specific analysis

Irregularities affecting the different funds

Table SF5 shows the repartition of the irregular amounts reported for 2006 between the different Funds (including the Cohesion Fund).

The numbers have decreased in comparison to last year due to the already mentioned change in the legislation. In 2005 the Member States communicated to OLAF 3,570 irregularities; in 2006 it was 3,216 (- 9.9%).

As in previous years, most irregularities were communicated for the ERDF and ESF. About 75% of the irregularities were reported for those two funds alone. There has been also an important increase in the number of irregularities in the EAGGF-Guidance (+38% as compared to 2005). The share of the irregularities for the Cohesion Fund and the FIFG remained quite stable.

This situation is showed in details in chart SF12 and table SF6 below.

Chart SF 12 Cases of irregularities per Structural Fund (CF included)

[pic] Table SF 5: Number of cases as compared to 2005

Member State qualification (50.9% of the full dataset) | 12.3% | 35.2% | 62.5% | 3.8% | 14.7% |

OLAF qualification (on the full dataset) | 19.4% | 21.1% | 33.8% | 10.1% | 16.6% |

This consistency is particularly evident on the total of the reported irregularities, while on the different Funds significant differences are present.

However, also following OLAF’s analysis, the main patterns are confirmed. That is to say that FIFG remains the fund with the highest relative impact and ESF is, contrary to the year 2005, the fund with the lowest.

Table SF8 presents the same comparison between the qualification provided by Member States and OLAF’s analysis in relation to the amounts reported.

Table SF 8: Percentage of reported amounts qualified as “suspected fraud” and estimation of “suspected fraud” amounts per fund

DATA SET | ERDF | EAGGF-Guidance | FIFG | ESF | TOTAL |

Member State qualification (50.9% of the full dataset) | 34.6% | 29.2% | 40.3% | 2.9% | 25.1% |

OLAF qualification (on the full dataset) | 34.6% | 19.6% | 33.6% | 6.1% | 24.3% |

In this case, the results are even closer than in table SF7 and the only unconfirmed pattern is related to the predominance of ERDF over FIFG.

However, it is still recommended to take a lot of caution in assessing the meaning of these figures. A 100% qualification from the Member States would remove a great deal of this caution, but the similar results are, indeed encouraging.

Chart SF16 presents the trend of the percentage of suspected frauds on the total reported irregularities in the last seven years calculated according to OLAF’s estimations.

A striking aspect is the relatively stable percentage of irregularities that could be estimated as suspected fraud and that is around 15% of the total reported (darker line on the chart).

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

On the basis of this estimation, in 2006, reported “suspected frauds’ affect about 0.41% of the budget allocation for the structural actions.

However, this does not mean that this amount is effectively defrauded or turns out into a loss for the European budget. In fact, these amounts relate to suspected fraudulent behaviours that have been detected by national authorities and for which recovery procedures are undergoing. Moreover, when these situations were detected in early stages of the process, the “potential” loss is even decreased, because no payments or only interim payments have been granted.

Chart SF 16: Level of “suspected frauds” on total reported irregularities from 2000 to 2006

[pic]

By examining closely only the cases estimated to be considered as suspected fraud, the amounts still to be recovered related to them have an impact on the EU budget of 0.18%.

Irregularities detected before payment

Therefore, an interesting aspect to examine in the framework of the protection of the communities’ financial interests is what proportion of irregularities is detected before any payment is effectively made to the beneficiaries.

This aspect can provide some concrete elements also concerning Member States’ preventive action.

Table SF9 shows the total number of irregularities reported by each Member State (column A); the number of irregularities detected before any payment is made (column B); what percentage B represents on A (column C); the financial amounts reported as irregular (column D) and those related to the irregularities detected before payment (column E); and finally what percentage of the total irregular financial amounts reported have been identified before payment (column F).

Very high rates of detection before payment emerge especially in some of the new Member States (namely Czech Republic, Hungary, Lithuania, and Poland) and especially in the Scandinavian countries and in the Netherlands.

Very low rates are referred to France, Portugal, Spain, Germany and Greece.

Table SF 9: irregularities detected before payments per Member States - 2006

€ | No Reports | Eligible amount | Irregular amount | Amount to be recovered |

Bulgaria | 10 | 1,353,814 | 17,314 | 17,225 |

Cyprus | 0 | 0 | 0 | 0 |

Czech Republic | 0 | 0 | 0 | 0 |

Estonia | 1 | 2,828 | 2,828 | 2,828 |

Hungary | 9 | 1,162,002 | 26,593 | 9,205 |

Latvia | 10 | 415,790 | 36,699 | 12,779 |

Lithuania | 2 | 314,384 | 3,480 | 0 |

Malta | 5 | 1,147,287 | 8,600 | 0 |

Poland | 27 | 7,411,633 | 38,910 | 10,839 |

Romania | 88 | 38,684,185 | 137,600 | 70,489 |

Slovakia | 5 | 2,667,250 | 15,373 | 9,974 |

Slovenia | 0 | 0 | 0 | 0 |

Turkey | 0 | 0 | 0 | 0 |

Total | 157 | 53,159,173 | 287,397 | 133,339 |

- Another problem relates to missing information, as, according to the regulation, certain information must be included in the report. In case of transmission of information concerning legal persons as required by article 3(1)(k) of Regulation No 1681/94. Five States fulfil the obligation in all the reports: Cyprus, Czech Republic, Latvia, Slovenia and Turkey. In 2006 this obligation was on average fulfilled in 85% of reported cases. At the other end of the spectrum are Malta (compliance level 20%), Estonia (50%) and Lithuania (50%). Reporting nominal data concerning natural persons is at a much lower level. On average data was transmitted only in 40% of cases. The best record belongs to Lithuania, the only country that fully complied. Second best, Romania, complied only in 58% of cases. At the bottom of the scale are Cyprus, Czech Republic, Malta, Slovenia, Turkey with compliance level of 0%.

According to article 3(1)(e) of Regulation No 1681/94 reporting authorities have to qualify suspected fraud cases. As presented on chart PA2, six States out of thirteen did not fulfil that requirement, and only one, Estonia, fully complied.

Chart PA 2: Compliance level in 2006 – qualification of irregularity

[pic]Table PA2 presents the time span that elapses for each country between the occurrence of irregularity and its reporting to the Commission.

Table PA 2: Time delay – all first communications

Irregularity - Discovery | Discovery-Reporting |

Method of detection | Share in % | Cumulative share | Share in % | Cumulative share |

National administrative or financial control | 35.41% | 35.41% | 17.45% | 17.45% |

Control of documents | 29.18% | 64.59% | 45.57% | 63.02% |

On the spot control of achievement of project | 12.65% | 77.24% | 9.64% | 72.66% |

Ex post control | 5.64% | 82.88% | 1.56% | 74.22% |

National fiscal control | 3.21% | 86.09% | 4.95% | 79.17% |

Control by national anti-fraud service | 1.85% | 87.94% | 3.65% | 82.82% |

Routine | 1.36% | 89.30% | 3.65% | 86.47% |

In 2006, the most popular method of detection by number of reported irregularities was control of documents The growing importance of this detection method in comparison to others is evident. In all years this method of detection was second most common and in 2006 it constituted 45% both by number of reported cases and irregular amount. This might be the effect of phasing out of the pre-accession funds in the new Member States and increased controls in connections to both final payments and to closure controls.

The table PA4 presents the method of detection classified by irregular amount. The main difference is the overall increase in share of the national administrative and financial controls which makes up 44.3%. This shows the importance of national implementation and controls mechanisms in the process of detection.

Table PA 4: Method of detection by irregular amount

All years | 2006 |

Method of detection | Share in % | Cumulative share | Share in % | Cumulative share |

National administrative or financial control | 44.32% | 44.32% | 16.15% | 16.15% |

Control of documents | 26.78% | 71.10% | 45.07% | 61.22% |

On the spot control of achievement of project | 13.19% | 84.29% | 11.54% | 72.76% |

Ex post control | 6.08% | 90.37% | 1.81% | 74.57% |

National fiscal control | 2.26% | 92.64% | 7.39% | 81.96% |

Other controls | 1.36% | 94.00% | 2.25% | 84.21% |

Types of irregularity

The most frequently reported type of irregularity by number of received communications in 2006 was “non-eligible expenditure”: 17% of irregularities had this modus operandi. It was the most common type in all three pre-accession funds, as in ISPA it represented 30.8%, 23.8%in SAPARD and 9.8% in PHARE.

Table PA 5: Type of irregularity by number of reported irregularities

All years | 2006 |

Share in % | Cumulative share | Share in % | Cumulative share |

Non-eligible expenditure | 16.51% | 16.51% | 17.02% | 17.02% |

Failure to respect other regulations/contract conditions | 8.59% | 25.10% | 6.28% | 23.30% |

Other irregularities | 7.82% | 32.92% | 11.78% | 35.08% |

Falsified supporting documents | 6.87% | 39.79% | 7.07% | 42.15% |

Failure to fulfil commitments entered into | 5.82% | 45.61% | 7.57% | 49.72% |

Action not carried out in accordance with rules | 4.96% | 50.57% | 3.14% | 52.86% |

Infringement of rules concerned with public procurement | 4.77% | 55.34% | 1.57% | 54.43% |

Missing or incomplete supporting documents | 4.77% | 60.11% | 3.40% | 57.83% |

Incorrect accounts | 4.01% | 64.12% | 2.88% | 60.71% |

Falsified accounts | 3.53% | 67.65% | 0.52% | 61.23% |

Not indicated | 3.34% | 70.99% | 0.00% | 61.23% |

Failure to respect deadlines | 3.05% | 74.05% | 4.97% | 66.20% |

Unjustified expenditures | 3.05% | 77.10% | 6.02% | 72.22% |

In PHARE fund, the second most frequently reported modus operandi was “unjustified expenditure” which had a share of 9.8%. In PHARE the distribution of types of irregularity is more even than in the other funds: irregularities concerning eligibility of expenditures were followed by “failure to respect deadlines” (7.7%) and “falsified supporting documents” (7.5%). The latter had a similar share also in SAPARD (8.13%).

Comparing the figures from 2006 with the data for all years similar patterns can be observed. The most common type of irregularity remains “non-eligible expenditure” both globally and in all three pre-accession funds separately. It had the highest share in ISPA fund - 23.2%. “Falsified supporting document” type of irregularity was the second most common in SAPARD (9.8%) and in PHARE was next to other potentially fraudulent modus operandi, “falsified accounts” (5.4%), and together they represented 10.5% of all irregularities.

If the comparison is made by affected irregular amount, the share changes. The most common type of irregularity in 2006 was “failure to fulfil commitments entered into” 18,9%. This result was the outcome of high share of this type in SAPARD – 45.9%. This type of comparison made on the base of irregular amount is heavily influenced by few cases involving high share of irregular amount. In ISPA four cases with the type of irregularity “absence or incompatibility of contract” made up 85.9% of irregular amount of all cases. In PHARE the concentration was lower, the most detected modus operandi “infringement with regards to the co-financing system” compose 18.5%.

Table PA 6: Type of irregularity by irregular amount

All years | 2006 |

Share in % | Cumulative share | Share in % | Cumulative share |

Missing or incomplete documents | 12.92% | 12.92% | 0.30% | 0.30% |

Failure to respect other regulations/contract conditions | 12.43% | 25.35% | 2.67% | 2.97% |

Non-eligible expenditure | 11.49% | 36.85% | 7.99% | 10.96% |

Falsified supporting documents | 8.73% | 45.57% | 3.08% | 14.04% |

Failure to fulfil commitments entered into | 6.57% | 52.14% | 18.87% | 32.91% |

Action not completed | 5.25% | 57.39% | 0.22% | 33.13% |

Other irregularities | 4.66% | 62.05% | 12.08% | 45.21% |

Action not carried out in accordance with rules | 4.22% | 66.27% | 2.86% | 48.07% |

Incorrect supporting documents | 3.87% | 70.14% | 3.14% | 51.21% |

Incorrect accounts | 3.79% | 73.93% | 3.21% | 54.42% |

Missing or incomplete supporting documents | 2.92% | 76.85% | 1.61% | 56.03% |

Not indicated | 2.84% | 79.69% | 0.00% | 56.03% |

Falsified accounts | 2.76% | 82.45% | 2.16% | 58.19% |

In all communications in all years “missing or incomplete documents” was the most common type of irregularity. Cases with this modus operandi were almost not reported during 2006. However from previous year their share is still considerable. In ISPA they represented 53.6% of all reported irregular amounts. In PHARE the widest spread type of irregularity was “action not completed”- 12.8%. In SAPARD 20.9% of irregular amount was committed by declaring non-eligible expenditure. In SAPARD “falsification of supporting documents” was also common, 18.1%.

Impact on the budget

In the pre-accession irregularity reporting form the budget year is not indicated and the data concerning project numbers are very often incomplete which makes it impossible to assess the impact on the budget in the given budget year. Given that the pre-accession funds are being phased out, chart PA5 is an attempt to present already a global picture for all years.

This graph has to be interpreted with caution for two reasons. Firstly, the different attitude of Member States towards detecting and reporting obligations. The countries more efficient in detecting and more willing to report irregularities will have this share at a considerably higher level, while countries reluctant to reporting will look better, even if this does not necessarily mean that they protect the EU financial interests better. The second problem is that data used for the table presents the allocation, which does not reflect actual implementation of the funds. Depending on the efficiency in implementation of the country’s authorities the figures might rise.

Chart PA 5: Eligible expenditure and irregular amounts as % of expenditure – all years

[pic]

The highest impact of the eligible expenditure is in ISPA with 22.1% and, at the same time, ISPA had the lowest impact of irregular amount on the allocation with 0.19%. This is due to the features connected to implementation of the fund, as in that area big projects dominate – eligible amounts of the project are high. In other two funds where considerable smaller in size projects are implemented, the impact on the budget is lower, 6.7% and 5.8% respectively in PHARE and SAPARD. What differentiates these two funds is the impact of irregular amount on the budget. In PHARE it was considerable lower (0.28%) than in SAPARD (0.67%).

If one compares chart PA5 and chart PA6, two different groups of countries can clearly be distinguished. The first one is those that report a lot of cases: Poland, Romania and Lithuania; in these countries irregular amounts as a percentage of eligible expenditure is low. At the other extreme is Slovenia and Bulgaria which report projects with high irregular share, which in many cases equals almost 100%. Despite a high share of irregular amounts in eligible expenditure in these countries, the total share of the irregular amounts in allocated expenditure remains at the low level (1%) because these countries report very little.

Chart PA 6: Reported irregular amount as share of reported eligible expenditure

[pic]

Specific analysis

Taking into consideration the fact that the quality of the reports remains far from being fully reliable and comparable between reporting countries, attempt to analyse them should be treated very carefully. The highest number of reported cases in 2006 was in PHARE fund. The trend has been slightly changing, so far dominated SAPARD irregularities, PHARE, with the irregularities reported in 2006, almost reached the level of SAPARD in all years’ statistics. Both SAPARD and PHARE funds have more relatively smaller projects in comparison to ISPA fund. In 2006 average total eligible amount in SAPARD and PHARE funds’ project was EUR 0.3 million and in ISPA fund this average was EUR 13.1 million. In comparison to 2005 the average eligible amount in PHARE decreased by 30% and in SAPARD the average decreased by 17%. On the other side, in ISPA it increased more than 3 fold.

Chart PA 7: Distribution of communications by number of reports

In 2006, the highest average irregular amount (Community financing) per reported project was in ISPA with EUR 61,957, decreasing in comparison to 2005. PHARE and SAPARD had respectively EUR 41,117 and EUR 28,924. Comparing Members States, the highest average amount per project in PHARE and SAPARD funds was reported by Slovakia, with EUR 166,386 and EUR 180,022, respectively, and in ISPA by Romania with EUR 64,875.

Chart PA 8: Distribution of communications by irregular amount

The graph below compares average irregular amount per project in 2006 with all the years. One can observe that in almost all the countries this has either remained stable or dropped, the only exception is Slovakia. What caused this sudden increase remains to be clarified and requires further analysis. In 2006 for all funds and all countries the average amount irregular per case was EUR 36,749 and decreased in comparison to 2005 by 41%.

Chart PA 9: Average irregular amount

[pic]

Irregularity vs Suspected Fraud

Distinguishing between irregularity and suspected fraud poses certain problems. Reporting authorities very reluctantly qualify case – graph PA2 shows that only 68% of reports qualify the irregularities. This forces OLAF to qualify reports very often based on the incomplete and scarce information in the report. Considering this limitations, estimation of the level of fraud should be interpreted very carefully.

In total across all years, cases of suspected fraud made up 8.3% of irregular amount. This number is slightly higher if calculated by number of reports – 12.6%. The most common modus operandi in fraudulent cases was “falsified supporting documents” which represented 37.3% of cases.

A comparison between the funds shows quite some disproportions. There were no cases of fraud reported in ISPA in any years. In SAPARD cases of fraud by irregular amount constituted 7.9% and 12.8% by number of cases. The highest share of suspected fraud cases was in PHARE, 13.7% by irregular amount and 14.9% by number of cases. Suspected fraud in PHARE composed 62% of the total amount of suspected fraud in all years. It could be interpreted that the immaterial output that dominates in PHARE projects is more prone to fraudulent activities.

Chart PA 10: Share of suspected fraud in reported cases

[pic]* Includes irregularities reported until 2002

In absolute terms suspected fraud in both number of reports and irregular amount has been steadily growing each year. The drop in 2004 and 2005 was primarily caused by increased number of all irregularity reports.

The share of amount of cases classified as suspected fraud in the total eligible amount of reported projects is very low, representing 0.2%, taking into account that the total irregular amount of all reported projects is only 2.5% of the sum of eligible amount. The percentage of the sum of suspected fraud in the total allocated amount is respectively even lower – 0.03%. This number should be higher if the actual amount of eligible expenditure of projects implemented were compared. However, the final share of suspected fraud cases in pre-accession funds remains very low and not in line with what is observed in other European funds.

Recovery

In 1 ,061 reported cases 852 involved irregular amount to be recovered. In 437 cases an irregular amount has been fully or partially recovered and in 464 cases irregular amount still need to be recovered. More money has still to be recovered (EUR 14.7 million) than has been recovered (EUR 11.0 million).

Table PA7 presents the recovery situation per country. It also presents the recovery rate, which is the percentage of the amount recovered in the sum of amount recovered and amount to be recovered.

The lowest amount remaining to be recovered is in ISPA - EUR 0.4 million, while in PHARE and SAPARD it is EUR 7.4 and EUR 6.9 million respectively. ISPA has also the highest recovery rate almost 90% of the amounts that is supposed to be recovered has already been recovered. In PHARE the recovery rate is 47.4% and in SAPARD only 16%.

Table PA 7: Recovery by reporting country

Amount recovered | Amount to be recovered | Recovery rate |

BG | 176,168 | 2,808,742 | 5.90% |

CY | 0 | 0 |

CZ | 260,665 | 886,673 | 22.72% |

EE | 2,636,445 | 509,096 | 83.82% |

HU | 1,354,978 | 585,081 | 69.84% |

LT | 96,388 | 1,715,801 | 5.32% |

LV | 10,979 | 277,736 | 3.80% |

MT | 0 | 0 |

PL | 1,473,088 | 896,996 | 62.15% |

RO | 4,211,918 | 4,306,859 | 49.44% |

SI | 0 | 182,830 |

SK | 763,303 | 2,421,359 | 23.97% |

TR | 0 | 147,816 |

Total | 10,983,931 | 14,738,990 | 42.70% |

Table PA8 presenting distribution by year, shows two phenomena; first is time delay in recovery process. The highest recovery rate concerns cases reported in 2004 – two years might be the necessary time gap to finish all the procedures required by law. After 2004 the recovery rate drops but we still may expect it to rise in the future. Secondly, cases reported before 2004 where the risk that this amounts will not be recovered is very high, as they have been pending for a long period and usually become prescribed.

Table PA 8: Recovery by reporting year

Year | Amount recovered | Amount to be recovered | Recovery rate |

2002[56] | 982 | 16,440 | 5.64% |

2003 | 525,676 | 1,490,063 | 26.08% |

2004 | 3,287,674 | 1,731,445 | 65.50% |

2005 | 4,118,792 | 4,550,982 | 47.51% |

2006 | 3,050,807 | 6,950,060 | 30.51% |

Total | 10,983,931 | 14,738,990 | 42.70% |

Conclusions

The irregular amounts decreased by 29.9%, despite the fact that the number of reported cases have increased together with reported eligible amount (by 122%).

There is a clear need for unified interpretation, use of guidelines and working documents to ensure comparability of data between different countries and different funds.

The most common method of detection in 2006 both by irregular amount and number of communications was control of documents – 45% of detected cases.

In 2006 the most frequently reported type by number of irregularity communicated across all the pre-accession funds and in each one was “non-eligible expenditure”. By reported irregular amounts the most detected modus operandi was “failure to fulfil commitments entered into”.

Impact on the budget varies from country to country, but it more reflects the specific country’s willingness to report, than the amount of irregularities and should be interpreted very cautiously. In comparison between the funds the highest impact of irregular amounts on the budget was in SAPARD, 0.67%.

The low impact on the budget of both eligible expenditures and irregular amount in comparison with other funds shows, that new Member States are generally underreporting.

In comparison with other pre-accession funds immaterial output in PHARE projects appears to be more prone to fraudulent attempts.

Recovery is more successful the earlier it is started. There is a very limited chance to recover the irregular amount in cases pending for over 3 years.

ANNEXES

ANNEX 1 – TRADITIONAL OWN RESOURCES

Number of cases OWNRES and amounts for the period 2003-2006 by Member State |

YEAR | CASES | IMPACT CASES % OF TOTAL | AMOUNTS ESTABLISHED | IMPACT AMOUNTS ESTABLISHED % OF TOTAL |

2002 | 1,872 | 71.59% | 197,172,984 | 54.20% |

2003 | 2,152 | 66.63% | 212,132,130 | 78.80% |

2004 | 2,209 | 66.18% | 180,429,114 | 82.92% |

2005 | 3,138 | 52.80% | 246,915,054 | 75.19% |

2006 | 3,302 | 62.98% | 231,911,905 | 65.72% |

ANNEX 4 – TRADITIONAL OWN RESOURCES

TOP 10 CHAPTER HEADINGS |

2005 | 2006 |

2004 | 2005 | 2006 |

2004 | 2005 | 2006 |

MEMBER STATES | AMOUNT € | RECOVERED € | RECOVERY RATE |

AT | 6,857,684 € | 2,299,000 € | 33.52% |

BE | 12,387,812 € | 1,537,940 € | 12.41% |

CY | 193,604 € | 91,749 € | 47.39% |

CZ | 2,287,699 € | 1,430,251 € | 62.52% |

DE | 46,345,172 € | 28,722,922 € | 61.98% |

DK | 6,067,958 € | 4,617,533 € | 76.10% |

EE | 178,010 € | 32,457 € | 18.23% |

ES | 27,590,199 € | 13,535,077 € | 49.06% |

FI | 1,464,957 € | 241,489 € | 16.48% |

FR | 33,387,673 € | 11,654,263 € | 34.91% |

GR | 442,048 € | 342,322 € | 77.44% |

HU | 7,428,526 € | 753,265 € | 10.14% |

IE | 2,604,534 € | 2,561,438 € | 98.35% |

IT | 69,882,133 € | 1,913,057 € | 2.74% |

LT | 1,634,868 € | 763,832 € | 46.72% |

LU | 49,291 € | 49,291 € | 100.00% |

LV | 1,422,325 € | 375,539 € | 26.40% |

MT | 574,945 € | 0 € | 0.00% |

NL | 63,284,120 € | 6,215,407 € | 9.82% |

PL | 2,067,153 € | 1,102,239 € | 53.32% |

PT | 835,319 € | 255,621 € | 30.60% |

SE | 2,164,111 € | 2,001,858 € | 92.50% |

SI | 950,848 € | 304,093 € | 31.98% |

SK | 1,527,433 € | 510,713 € | 33.44% |

UK | 61,250,909 € | 32,057,182 € | 52.34% |

EUR-25 TOTAL | 352,879,331 € | 113,368,538 € | 32.13% |

ANNEX 8 – TRADITIONAL OWN RESOURCES

Smuggling - Seized and confiscated goods (cigarettes) |

Member State | 2005 | 2006 |

MEMBER STATE | 2005 | 2006 |

(x €1,000) | (x €1,000,000) |

2006 | 3,216 | 703,302 | 38,430 | 1.83% |

2005 | 3,570 | 600,816 | 37,192 | 1.62% |

2004 | 3,339 | 695,611 | 35,665 | 1.95% |

2003 | 2,487 | 482,215 | 30,764 | 1.57% |

2002 | 4,656 | 614,094 | 30,556 | 2.01% |

2001 | 1,194 | 201,549 | 29,823 | 0.68% |

2000 | 1,217 | 114,227 | 25,556 | 0.45% |

1999 | 698 | 120,633 | 30,654 | 0.39% |

1998 | 407 | 42,838 | 28,366 | 0.15% |

[pic]

*The concept of irregularity includes fraud. The qualification as fraud, meaning criminal behaviour, can only be made following a penal procedure.

ANNEX 15

PART 1

STRUCTURAL FUNDS

IRREGULARITIES REPORTED BY MEMBER STATES - 2006

REGULATION N. 1681/94

N° OF IRREGULARITIES

MEMBER STATES | ERDF | ESF | EAGGF - Guid. | FIFG | TOTAL |

AT | 40 | 18 | 1 | 59 |

BE | 15 | 10 | 6 | 31 |

CY | 0 |

CZ | 32 | 8 | 40 |

DE | 190 | 98 | 32 | 1 | 321 |

DK | 16 | 3 | 19 |

EE | 8 | 2 | 1 | 11 |

EL | 30 | 22 | 16 | 2 | 70 |

ES | 128 | 137 | 66 | 15 | 346 |

FI | 17 | 18 | 12 | 1 | 48 |

FR | 66 | 20 | 12 | 98 |

HU | 24 | 17 | 50 | 91 |

IE | 0 |

IT | 371 | 138 | 200 | 35 | 744 |

LT | 7 | 1 | 17 | 25 |

LU | 3 | 3 |

LV | 1 | 2 | 3 |

MT | 1 | 1 | 2 |

NL | 16 | 161 | 5 | 182 |

PL* | 24* | 56* | 65* | 2* | 147* |

PT | 89 | 297 | 50 | 4 | 440 |

SE | 36 | 23 | 7 | 5 | 71 |

SI | 3 | 4 | 7 |

SK | 1 | 6 | 7 |

UK | 110 | 94 | 12 | 7 | 223 |

TOTAL | 1,225 | 1,133 | 548 | 82 | 2,988 |

*This figures include 39 irregularities communicated in relation to the year 2005 but that could not be processed in time for the annual report 2005. If these are added to the year 2005, the number of reported irregularities from Poland remained stable from 2005 to 2006 (106 in 2005 and 108 in 2006).

ANNEX 15

PART 2

STRUCTURAL FUNDS

IRREGULARITIES REPORTED BY MEMBER STATES - 2006

REGULATION N. 1681/94

FINANCIAL AMOUNTS INVOLVED IN IRREGULARITIES

MEMBER STATES | ERDF | ESF | EAGGF - Guid. | FIFG | TOTAL |

AT | 6,377,317 | 1,455,574 | 18,706 | 7,851,597 |

BE | 2,939,477 | 273,430 | 468,082 | 3,680,989 |

CY | 0 |

CZ | 2,886,483 | 114,916 | 3,001,399 |

DE | 21,107,853 | 5,210,479 | 839,865 | 45,691 | 27,203,888 |

DK | 750,103 | 50,131 | 800,234 |

EE | 1,009,093 | 30,245 | 301,723 | 1,341,061 |

EL | 8,385,036 | 876,880 | 3,714,627 | 321,199 | 13,297,742 |

ES | 69,715,238 | 8,451,387 | 5,993,174 | 1,535,101 | 85,694,900 |

FI | 667,718 | 2,006,963 | 290,800 | 27,619 | 2,993,100 |

FR | 3,134,088 | 687,011 | 578,593 | 4,399,692 |

HU | 1,786,104 | 428,634 | 3,902,796 | 6,117,534 |

IE | 0 |

IT | 169,776,855 | 26,858,293 | 28,912,133 | 2,671,283 | 228,218,564 |

LT | 260,475 | 16,640 | 1,016,915 | 1,294,029 |

LU | 131,931 | 131,931 |

LV | 15,714 | 27,230 | 42,944 |

MT | 384,750 | 0 | 384,750 |

NL | 4,466,030 | 10,680,857 | 178,934 | 15,325,821 |

PL* | 9,582,382* | 1,069,955* | 1,449,467* | 152,348* | 12,254,152* |

PT | 16,465,889 | 13,170,634 | 7,243,107 | 293,047 | 37,172,677 |

SE | 1,468,822 | 671,861 | 160,303 | 245,711 | 2,546,697 |

SI | 2,533,955 | 64,227 | 2,598,183 |

SK | 85,629 | 469,584 | 555,213 |

UK | 36,225,033 | 22,285,603 | 688,792 | 591,035 | 59,790,464 |

TOTAL | 360,024,045 | 94,955,104 | 55,317,165 | 6,401,247 | 516,697,561 |

*This figures include 39 irregularities communicated in relation to the year 2005 that could not be processed in time for the annual report 2005. If these are added to the year 2005, the number of reported irregularities from Poland remained stable from 2005 to 2006 (106 in 2005 and 108 in 2006).

ANNEX 16

STRUCTURAL FUNDS

IRREGULARITIES COMMUNICATED BY MEMBER STATES UNDER REGULATION N. 1681/94

SITUATION OF RECOVERY

MEMBER STATES | To be recovered before 2006 | To be recovered communicated in 2006 | In justice before 2006 (*) | Amounts declared 'irrecoverable'(**) by Member States before 2005 |

AT | 6,893,472 | 5,168,883 | 1,815,891 | 1,000,768 |

BE | 12,507,191 | 1,578,077 | 828,207 | 11,504,913 |

CZ | 14,155 | 243,624 |

DE | 243,850,697 | 16,116,789 | 35,401,878 | 45,438,671 |

DK | 14,239,973 | 378,409 | 0 | 13,658,894 |

EE | 27,957 | 335,187 |

EL | 20,823,291 | 7,907,453 | 1,787,351 |

ES | 58,050,709 | 21,250,413 | 5,195,066 | 1,154,085 |

FI | 2,469,741 | 642,399 | 585,448 | 569,883 |

FR | 7,784,240 | 393,614 | 493,765 | 159,249 |

HU | 3,426 | 142,985 | 0 |

IE | 1,543,879 | 282,390 |

IT | 292,028,973 | 143,886,672 | 248,101,909 |

LT | 94,126 | 65,751 | 151,604 |

LU | 0 | 40,891 |

LV | 90,991 | 42,944 | 51,056 |

MT | 0 | 384,750 |

NL | 4,581,559 | 446,993 | 684,270 |

PL*** | 14,735 | 752,200*** |

PT | 7,911,608 | 24,720,820 | 1,835,497 | 432,938 |

SE | 661,119 | 496,545 | 43,747 |

SI | 1,159,042 |

SK | 174,513 |

UK | 88,806,426 | 40,207,902 | 187,146 | 1,778,124 |

TOTAL | 762,398,267 | 266,536,855 | 297,293,619 | 75,849,129 |

* In justice: awaiting outcome of judicial procedures in national courts.

**Amounts irrecoverable: awaiting formal decision according to the procedure set out in art. 5§2 of Regulation No. 1681/94.

*** These figures include 39 irregularities communicated in relation to the year 2005 that could not be processed in time for the annual report 2005. If these are added to the year 2005, the number of reported irregularities from Poland remained stable from 2005 to 2006 (106 in 2005 and 108 in 2006).

ANNEX 17

COHESION FUND - 2006

IRREGULARITIES COMMUNICATED BY MEMBER STATES UNDER REGULATION N. 1831/94

MEMBER STATES | N° OF IRREGULARITIES | FINANCIAL AMOUNTS INVOLVED | FIN. AMOUNTS TO BE RECOVERED |

CZ | 6 | 0 | 0 |

EL | 103 | 117,856,924 | 12,698,144 |

ES | 82 | 44,472,847 | 30,179,534 |

HU | 6 | 175,788 | 77,469 |

LT | 1 | 83,381 | 0 |

LV | 2 | 18,851 | 18,851 |

PL* | 10* | 249,102* | 128,787* |

PT | 18 | 23,747,904 | 14,850,306 |

TOTAL | 228 | 186,604,797 | 57,953,091 |

*These figures include 7 irregularities communicated in relation to the year 2005 that could not be processed in time for the annual report 2005. If these are added to the year 2005, the number of reported irregularities from Poland decreased from 2005 to 2006 (10 in 2005 and 3 in 2006).

ANNEX 18

PRE - ACCESSION FUNDS

Irregularities reported in 2006

Table

Fund | All funds |

€ | No Reports | Eligible amount[57] | Irregular amount | Amount to be recovered |

Bulgaria | 27 | 10,061,863 | 1,693,780 | 1,654,406 |

Cyprus | 1 | 1,530,000 | 0 | 0 |

Czech Republic | 4 | 155,650 | 155,650 | 155,650 |

Estonia | 4 | 106,366 | 62,166 | 45,813 |

Hungary | 16 | 1,437,832 | 268,245 | 9,205 |

Latvia | 16 | 730,774 | 211,242 | 178,483 |

Lithuania | 2 | 314,384 | 3,480 | 0 |

Malta | 5 | 1,147,287 | 8,600 | 0 |

Poland | 106 | 17,664,751 | 2,414,251 | 729,497 |

Romania | 188 | 405,067,200 | 5,471,695 | 3,310,006 |

Slovakia | 13 | 5,038,759 | 1,871,154 | 719,184 |

Slovenia | 1 | 129,935 | 0 | 0 |

Turkey | 1 | 147,816 | 147,816 | 147,816 |

Total | 384 | 443,532,616 | 12,308,078 | 6,950,060 |

Table 2

Fund | PHARE |

€ | No Reports | Eligible amount | Irregular amount | Amount to be recovered |

Bulgaria | 7 | 6,414,324 | 295,412 | 279,556 |

Cyprus | 1 | 1,530,000 | 0 | 0 |

Hungary | 8 | 1,212,979 | 206,079 | 9,205 |

Latvia | 13 | 527,854 | 91,308 | 58,549 |

Lithuania | 1 | 44,550 | 3,480 | 0 |

Malta | 5 | 1,147,287 | 8,600 | 0 |

Poland | 55 | 13,182,533 | 1,948,782 | 489,426 |

Romania | 97 | 30,397,056 | 2,817,451 | 2,194,851 |

Slovakia | 10 | 4,498,693 | 1,331,088 | 179,118 |

Slovenia | 1 | 129,935 | 0 | 0 |

Turkey | 1 | 147,816 | 147,816 | 147,816 |

Total | 199 | 59,233,027 | 6,850,016 | 3,358,521 |

Table 3

Fund | SAPARD |

€ | No Reports | Eligible amount | Irregular amount | Amount to be recovered |

Bulgaria | 18 | 2,762,292 | 1,388,956 | 1,374,850 |

Czech Republic | 4 | 155,650 | 155,650 | 155,650 |

Estonia | 4 | 106,366 | 62,166 | 45,813 |

Hungary | 8 | 224,853 | 62,166 | 0 |

Latvia | 3 | 202,920 | 119,934 | 119,934 |

Lithuania | 1 | 269,834 | 0 | 0 |

Poland | 51 | 4,482,218 | 465,469 | 240,071 |

Romania | 68 | 34,711,777 | 1,486,480 | 1,023,042 |

Slovakia | 3 | 540,066 | 540,066 | 540,066 |

Total | 160 | 43,455,975 | 4,280,887 | 3,499,425 |

Table 4

Fund | ISPA |

€ | No Reports | Eligible amount | Irregular amount | Amount to be recovered |

Bulgaria | 2 | 885,247 | 9,412 | 0 |

Romania | 23 | 339,958,367 | 1,167,764 | 92,113 |

Total | 25 | 340,843,614 | 1,177,176 | 92,113 |

ANNEX 19

PRE- ACCESSION FUNDS

Irregularities reported below the threshold in 2006

Table 1

Fund | PHARE |

€ | No Reports | Eligible amount | Irregular amount | Amount to be recovered |

Bulgaria | 3 | 42,900 | 13,757 | 13,757 |

Hungary | 5 | 1,033,493 | 26,593 | 9,205 |

Lithuania | 1 | 44,550 | 3,480 | 0 |

Latvia | 10 | 415,790 | 36,699 | 12,779 |

Malta | 5 | 1,147,287 | 8,600 | 0 |

Poland | 10 | 6,955,482 | 35,788 | 10,839 |

Romania | 54 | 23,020,991 | 94,494 | 49,645 |

Slovakia | 5 | 2,667,250 | 15,373 | 9,974 |

Total | 93 | 35,327,743 | 234,784 | 106,199 |

Table 2

Fund | SAPARD |

€ | No Reports | Eligible amount | Irregular amount | Amount to be recovered |

Bulgaria | 7 | 1,310,914 | 3,557 | 3,468 |

Estonia | 1 | 2,828 | 2,828 | 2,828 |

Hungary | 4 | 128,509 | 0 | 0 |

Lithuania | 1 | 269,834 | 0 | 0 |

Poland | 17 | 456,151 | 3,122 | 0 |

Romania | 34 | 15,663,194 | 43,106 | 20,844 |

Total | 64 | 17,831,430 | 52,613 | 27,140 |

NB: Tables present detailed division by fund of the table on page 63. Threshold applied € 10 000 in PHARE and € 4 000 in SAPARD.

ANNEX 20

PRE - ACCESSION FUNDS

Irregularities reported – all years

Table 1

Fund | All founds |

€ | No Reports | Eligible amount | Irregular amount | Amount to be recovered |

Bulgaria | 62 | 17,808,953 | 8,344,733 | 2,808,742 |

Cyprus | 5 | 5,624,616 | 23,807 |

Czech Republic | 28 | 21,073,573 | 1,731,151 | 886,673 |

Estonia | 28 | 23,479,841 | 5,927,074 | 509,096 |

Hungary | 90 | 13,223,427 | 2,230,815 | 585,081 |

Lithuania | 38 | 102,256,833 | 2,179,392 | 1,715,801 |

Latvia | 31 | 2,385,596 | 315,062 | 277,736 |

Malta | 5 | 1,147,287 | 8,600 | 0 |

Poland | 208 | 971,503,356 | 3,636,022 | 896,996 |

Romania | 437 | 580,655,836 | 14,548,953 | 4,306,859 |

Slovenia | 36 | 2,448,506 | 1,446,941 | 182,830 |

Slovakia | 89 | 44,907,690 | 6,339,712 | 2,421,359 |

Turkey | 1 | 147,816 | 147,816 | 147,816 |

Total | 1058 | 1,786,663,331 | 46,880,079 | 14,738,990 |

Table 2

Fund | PHARE |

€ | No Reports | Eligible amount | Irregular amount | Amount to be recovered |

Bulgaria | 23 | 6,991,629 | 558,025 | 480,915 |

Cyprus | 5 | 5,624,616 | 23,807 |

Czech Republic | 15 | 1,828,695 | 457,037 | 442,506 |

Estonia | 14 | 6,842,982 | 2,876,832 | 1,680 |

Hungary | 42 | 10,577,626 | 2,145,024 | 585,081 |

Latvia | 17 | 807,656 | 95,875 | 58,549 |

Lithuania | 20 | 962,533 | 607,049 | 486,214 |

Malta | 5 | 1,147,287 | 8,600 | 0 |

Poland | 91 | 342,176,055 | 2,049,906 | 489,426 |

Romania | 150 | 62,135,113 | 4,217,935 | 2,724,791 |

Slovakia | 82 | 17,015,931 | 5,666,591 | 1,832,239 |

Slovenia | 6 | 950,053 | 158,890 | 178,045 |

Turkey | 1 | 147,816 | 147,816 | 147,816 |

Total | 471 | 457,207,992 | 19,013,388 | 7,427,263 |

Table 3

Fund | SAPARD |

€ | No Reports | Eligible amount | Irregular amount | Amount to be recovered |

Bulgaria | 36 | 4,609,447 | 2,454,626 | 2,327,827 |

Czech Republic | 12 | 495,664 | 482,753 | 444,167 |

Estonia | 10 | 3,413,367 | 2,879,465 | 338,102 |

Hungary | 48 | 2,645,801 | 85,791 |

Latvia | 14 | 1,577,940 | 219,187 | 219,187 |

Lithuania | 11 | 4,445,720 | 1,570,011 | 1,229,111 |

Poland | 96 | 7,430,681 | 819,310 | 305,133 |

Romania | 226 | 127,250,434 | 7,511,621 | 1,484,246 |

Slovakia | 6 | 742,559 | 624,067 | 540,066 |

Slovenia | 30 | 1,498,453 | 1,288,050 | 4,786 |

Total | 489 | 154,110,066 | 17,934,882 | 6,892,624 |

Table 4

Fund | ISPA |

€ | No Reports | Eligible amount | Irregular amount | Amount to be recovered |

Bulgaria | 3 | 6,207,877 | 5,332,082 |

Czech Republic | 1 | 18,749,214 | 791,361 | 0 |

Estonia | 4 | 13,223,492 | 170,777 | 169,314 |

Lithuania | 7 | 96,848,580 | 2,332 | 476 |

Poland | 21 | 621,896,620 | 766,806 | 102,437 |

Romania | 61 | 391,270,289 | 2,819,397 | 97,822 |

Slovakia | 1 | 27,149,200 | 49,054 | 49,054 |

Total | 98 | 1,175,345,273 | 9,931,809 | 419,103 |

ANNEX 21

PRE- ACCESSION FUNDS

Irregularities communicated by Member States and Acceding Countries

Fund | PHARE | SAPARD | ISPA |

|CASES |TOTAL AMOUNT |CASES |TOTAL AMOUNT |CASES |TOTAL AMOUNT |CASES |TOTAL AMOUNT |CASES |TOTAL AMOUNT | | AT |93 |1,041 |59 |7,852 |0 |0 |72 |6,858 |224 |15,750 | | BE |57 |1,258 |31 |3,681 |0 |0 |360 |12,388 |448 |17,327 | | CY |7 |78 |0 |0 |0 |0 |7 |194 |14 |272 | | CZ |9 |161 |40 |3,001 |6 |0 |61 |2,288 |116 |5,450 | | DE |489 |7,320 |321 |27,204 |0 |0 |855 |46,345 |1,665 |80,869 | | DK |33 |1,187 |19 |800 |0 |0 |62 |6,068 |114 |8,055 | | EE |10 |99 |11 |1,341 |0 |0 |5 |178 |26 |1,618 | | EL |111 |1,306 |70 |13,298 |103 |117,857 |21 |442 |305 |132,903 | | ES |683 |25,937 |346 |85,695 |82 |44,473 |557 |27,590 |1,668 |183,695 | | FI |33 |455 |48 |2,993 |0 |0 |21 |1,465 |102 |4,913 | | FR |548 |11,689 |98 |4,400 |0 |0 |294 |33,388 |940 |49,476 | | HU |3 |10 |91 |6,118 |6 |176 |93 |7,429 |193 |13,732 | | IE |94 |857 |0 |0 |0 |0 |44 |2,605 |138 |3,462 | | IT |140 |20,003 |744 |228,219 |0 |0 |337 |69,882 |1,221 |318,104 | | LT |30 |309 |25 |1,294 |1 |83 |34 |1,635 |90 |3,321 | | LU |3 |13 |3 |132 |0 |0 |1 |49 |7 |194 | | LV |1 |13 |3 |43 |2 |19 |26 |1,422 |32 |1,497 | | MT |0 |0 |2 |38 |0 |0 |3 |575 |5 |613 | | NL |87 |5,702 |182 |15,326 |0 |0 |1,327 |63,284 |1,596 |84,312 | | PL* |67 |842 |147 |12,254 |10 |249 |69 |2,067 |293 |15,412 | | PT |359 |3,745 |440 |37,173 |18 |23,748 |17 |835 |834 |65,501 | | SE |80 |859 |71 |2,547 |0 |0 |44 |2,164 |195 |5,570 | | SI |1 |0 |7 |2,598 |0 |0 |24 |951 |32 |3,549 | | SK |0 |0 |7 |555 |0 |0 |27 |1,527 |34 |2,083 | | UK |311 |3,941 |223 |59,790 |0 |0 |882 |61,251 |1,416 |124,982 | | TOTAL |3,249 |86,825 |2 , 988 |516,698 |228 |186,605 |5,243 |352,879 |11,708 |1,143,007 | | *These figures include 39 irregularities for the Structural Funds and 7 for the Cohesion Fund, communicated in relation to the year 2005 that could not be processed in time for the annual report 2005.

[1] See in particular Article 3(1) of Council Regulation (EEC) No 595/91 of 4 March 1991 (OJ L 67, 14.3.1997), Commission 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.

[2] 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).

[3] Regulation 1681/94 applies to the Structuragriculture 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).

[4] 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 Fishery Guidance (FIFG).

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

[6] 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.

[7] 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.

[8] See the definition in Article 1 of the Convention on the protection of the Community’s financial interests of 26 July 1995 (OJ C No 316 of 27.11.1995), which entered into force on 17 October 2002.

[9] 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.

[10] These are mainly customs and agricultural duties.

[11] Regulation 1150/2000 of 22 May 2000.

[12] Regulation No 2028/2004, amending Regulation No 1150/2000.

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

[14] Origin of the cases: 3 cases from Belgium, 2 from Czech Republic, 120 from Germany, 1 from Denmark, 4 from Spain, 1 from Finland, 3 from France, 1 from Ireland, 2 from Italy, 18 from the Netherlands, 2 from Portugal and 5 from the UK.

[15] The breakdown between the amounts for each of the positions is, at this moment, only estimated because sometimes the same case may be partly accepted, not suitable or refused at the same time. Additional information from the Member States (in particular on the proportion of guarantee taken) is then needed to provide the final classification and quantification of the amounts concerned.

[16] 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 the inactivity of the customs) of the Community Customs Code, of Articles 869 and 889 of the Provisions for application of the Code or on the basis of non-observance, by the customs administration, of articles of the Community Customs Code giving rise to a situation of legitimate expectations of the operator.

[17] OWNRES is an abbreviation for Own Res ources.

[18] DG Budget organized a training seminar on OWNRES in 2006 in Bulgaria and Romania because of their accession.

[19] What is registered in OWNRES is not necessarily in the B-account also. In case of payment of the debt or non establishment of the debt (for instance cases of seized and confiscated cigarettes) the amounts should not be entered in the B-account. When there is payment is should be made available via the A-account and when there is no debt it should not be registered in either the A or B-account.

[20] ACOR= Advisory Committee on Own Resources, section Traditional Own Resources.

[21] See annex 8.

[22] The information generated by OWNRES used to produce the figures in this chapter are all queried on the 30th of March 2006.

[23] See annex 1 (table) and annex 2 (chart).

[24] In 2005 the number of cases of belatedly discharged Transit was 2,313. In 2006 there were 1,381 cases.

[25] The information generated by OWNRES used to produce the figures in this chapter are all queried on the 30th of March 2006.

[26] See annex 3.

[27] See annex 4: number of cases. See annex 5: specification CN goods up to 8 numbers, period 2004-2006.

[28] The product description in the table is a generic description of the chapters of the Common Customs Tariff.

[29] See annex 6.

[30] See annex 7.

[31] See annex 8: Specific facts for TOR (in particular, separate analyses of cigarettes figure, requested by Member States during the Art. 280 Group meeting of 12 july 2006).

[32] See annex 9.

[33] This percentage is calculated on the basis of an estimate of traditional own resources in the 2006 general budget, and not on the basis of accounts.

[34] See annex 10.

[35] Commission Decision of 3 October 2006 on the financial treatment to be applied, in the context of clearance of expenditure financed by the European Agricultural Guidance and Guarantee Section, in certain cases of irregularity by operators (notified under document number C(2006) 4324).

[36] Commission Decision of 13 October 2006 on the financial treatment to be applied, in the context of the clearance of expenditure financed by the Guarantee section of the European Agricultural Guidance and Guarantee Fund, in certain cases of irregularities by operators.

[37] The term “amounts cleared in €” includes the following amounts: amounts detected before payment; amounts actually recovered by Member States from the beneficiaries; amounts charged to Member States (Clearance of Accounts procedure); amounts charged to EAGGF-budget (Clearance of Accounts procedure).

[38] According to the German authorities national legislation restricts the reporting of nominal data.

[39] alone: only one type of irregularity (code) was indicated

shared: more than 1 type of irregularity (code) was indicated

[40] DG AGRI–nomenclature: 05 03 02 11 2125

[41] DG AGRI-nomenclature: 05 02 13 01 2100 and 05 03 02 01 2100

[42] DG AGRI-nomenclature: 05 02 13 04 2101 and 05 03 02 13 2101

[43] According to the German authorities national legislation restricts the reporting of nominal data

[44] The four Structural Funds are: 1. The European Regional Development Fund (ERDF), supporting primarily productive investment, infrastructure and development of SMEs; 2. The European Social Fund (ESF), supporting measures to promote employment (education systems, vocational training and recruitment aids); 3. The Guidance Section of the European Agricultural Guidance and Guarantee Fund (EAGGF-Guidance), supporting measures for the adjustment of agricultural structures and rural development; 4. The Financial Instrument for Fishery Guidance (FIFG), supporting measures for the adjustment of the fisheries sector and the ‘accompanying measures’ of the common fishery policy.

[45] As amended by Regulation (EC) No 2035/2005

[46] As amended by Regulation (EC) No 2168/2005

[47] According to the German authorities national legislation restricts the reporting of nominal data

[48] However, as provided for by article 3(3) of Regulations (EC) Nos 1681/94 and 1831/94, « If national provisions provide for the confidentiality of investigations, communication of the information shall be subject to the authorization of the competent court of tribunal». Therefore, a part of this missing information may be due to this situation.

[49] This is to be expected as the main fund from which the Netherland benefit is indeed the ESF.

[50] However, data concerning Poland also include 46 irregularities (about 30% of the total, see annexes 15 and 17) that were reported in the fourth quarter of 2005, but that could not be processed on time and therefore were included in the reporting year 2006.

[51] The amounts shown in this column refer to all the instances of the type of irregularities, either when they are reported alone or when they are reported together with other types.

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

[53] The Cohesion Fund finances big infrastructure projects related to transports, energy and environment.

[54] Three general objectives are foreseen for the programming period 2000-2006: Objective 1: promote the development and structural adjustment of regions whose development is lagging behind; Objective 2: supporting the economic and social conversion of areas experiencing structural difficulties; Objective 3: supporting the adaptation and modernisation of education, training and employment policies and systems in regions not eligible under Objective 1. Furthermore, through the Funds are also financed the so called “Community Initiatives” , aimed at intervening on specific aspects such as, for example, stimulating interregional cooperation (INTERREG); promoting the design and implementation of innovative models of development for the economic and social regeneration of troubled urban areas (URBAN).

[55] According to the German authorities national legislation restricts the reporting of nominal data

[56] Decides the sending date of the report.

[57] Including preceding years.

[58] If the amount was reported in national currency the Commission monthly exchange rate was used.