TABLE OF CONTENTS

LIST OF ABBREVIATIONS...................................................................................................... 7

PART I – INTRODUCTION....................................................................................................... 9

1........... INTRODUCTION........................................................................................................ 9

1.1........ Scope of the document................................................................................................... 9

1.2........ Structure of the document............................................................................................... 9

2........... THE EUROPEAN UNION BUDGET (Annexes 1-2).................................................... 9

2.1........ Revenues...................................................................................................................... 10

2.2........ Expenditure.................................................................................................................. 11

2.3........ Management of the Budget........................................................................................... 12

PART II - REVENUES.............................................................................................................. 13

3........... TRADITIONAL OWN RESOURCES (Annexes 3-16)............................................... 13

3.1........ Management of Traditional Own Resources (TOR)....................................................... 13

3.1.1..... Monitoring of establishment and recovery of TOR......................................................... 13

3.1.2..... Procedure for managing Member States’ reports for write-off........................................ 13

3.1.3..... Particular cases of Member State failure to recover TOR............................................... 15

3.2........ General trends.............................................................................................................. 15

3.2.1..... Types of irregularity and fraud....................................................................................... 16

3.2.2..... TOR and cigarettes....................................................................................................... 17

3.2.3..... Data main sectors TOR................................................................................................ 18

3.3........ Detection of fraud and irregularity.................................................................................. 18

3.3.1..... Member States' control systems – Method of detection expressed in cases.................... 18

3.3.1.1.. Method of detection of fraud cases............................................................................... 19

3.3.2..... Member States' control systems – Method of detection expressed in monetary terms..... 20

3.3.2.1.. Method of detection expressed in monetary terms - for fraud cases................................ 21

3.3.3..... Customs procedures affected to fraud and irregularity in 2011- in amounts..................... 22

3.3.3.1.. Customs procedures affected to fraud in 2011- in amounts............................................ 22

3.3.4..... Percentage of established or estimated amounts in OWNRES to collected TOR............ 22

3.4........ Recovery and Follow-up.............................................................................................. 24

3.4.1..... Recovery rate............................................................................................................... 24

3.4.2..... Recovered amounts...................................................................................................... 25

3.4.3..... Administrative stage - from 1998 to 2011..................................................................... 25

3.5........ Conclusions.................................................................................................................. 26

PART III - EXPENDITURE...................................................................................................... 28

4........... PRESERVATION AND MANAGEMENT OF NATURAL RESOURCES (AGRICULTURE AND FISHERIES)................................................................................................................ 28

4.1........ Agricultural expenditure (Annexes 17-22)..................................................................... 28

4.2........ Reporting Year 2011.................................................................................................... 30

4.2.1..... Reporting Year 2011: cases reported............................................................................ 30

4.2.2..... Reporting Year 2011: reporting discipline...................................................................... 31

4.2.3..... Reporting Year 2011: financial follow up of irregularity cases......................................... 32

4.3........ General trends.............................................................................................................. 34

4.3.1..... Reporting Years 2004-2011: expenditure...................................................................... 35

4.3.2..... Reporting Years 2004-2011: cases of irregularities........................................................ 35

4.3.3..... Reporting Years 2004-2011: cases of irregularities reported as fraudulent...................... 37

4.4........ Specific analysis............................................................................................................ 41

4.4.1..... Financial Years 2004-2006: cases of irregularities reported as fraudulent....................... 42

4.5........ Conclusions.................................................................................................................. 43

4.5.1..... Reporting Year 2011.................................................................................................... 43

4.5.2..... Reporting Years 2004-2011......................................................................................... 43

4.5.3..... Financial Years 2004-2006.......................................................................................... 43

4.6........ Fisheries (Annex 23)..................................................................................................... 43

4.6.1..... Financial framework..................................................................................................... 43

4.6.2..... Management, monitoring and control............................................................................. 43

4.6.3..... Irregularities affecting the EFF reported in 2011............................................................ 43

5........... COHESION FOR GROWTH AND EMPLOYMENT (Annexes 24-28)..................... 43

5.1........ Introduction.................................................................................................................. 43

5.2........ Irregularities reporting................................................................................................... 43

5.3........ Reporting Discipline...................................................................................................... 43

5.4........ General trends.............................................................................................................. 43

5.5........ Irregularities reported as fraudulent................................................................................ 43

5.5.1..... Types of fraud by Fund................................................................................................. 43

5.5.1.1.. ERDF.......................................................................................................................... 43

5.5.1.2.. ESF............................................................................................................................. 43

5.5.1.3.. Other funds.................................................................................................................. 43

5.5.2..... Irregularities not reported as fraudulent – Year 2011..................................................... 43

5.6........ Analysis of the 2000-2006 Programming Period– cumulative data................................. 43

5.6.1..... Irregularities reported as fraudulent - programming period 2000-2006........................... 43

5.6.1.1.. General overview.......................................................................................................... 43

5.6.1.2.. Irregularities reported as fraudulent –established fraud................................................... 43

5.6.2..... Irregularities not reported as fraudulent – programming period 2000-2006..................... 43

5.7........ Analysis of the 2007-2013 programming period - cumulative data................................. 43

5.7.1..... Irregularities reported as fraudulent – 2007-2013 programming period.......................... 43

5.7.2..... Irregularities reported as non-fraudulent – programming period 2007-2013................... 43

5.7.3..... Recovery...................................................................................................................... 43

5.8........ Conclusions.................................................................................................................. 43

5.8.1..... Analysis of irregularities reported in 2011...................................................................... 43

5.8.2..... Programming Period 2000-2006................................................................................... 43

5.8.3..... Programming Period 2007-2013................................................................................... 43

6........... Pre-accession funds (Annexes 29-30)........................................................................... 43

6.1........ Reporting discipline....................................................................................................... 43

6.2........ General Trends............................................................................................................. 43

6.2.1..... Overall trend................................................................................................................ 43

6.2.2..... Irregularities reported as fraudulent................................................................................ 43

6.2.2.1.. Irregularities reported as fraudulent in relation to Pre-Accession Assistance (2000-2006) 43

6.2.2.2.. Irregularities reported as fraudulent in relation to the Instrument for Pre-Accession (2007-2013) 43

6.2.3..... Irregularities not reported as fraudulent.......................................................................... 43

6.2.3.1.. Irregularities not reported as fraudulent in relation to Pre-Accession Assistance (2000-2006) 43

6.2.3.2.. Irregularities reported as non-fraudulent in relation to the Instrument for Pre-Accession (2007-2013) 43

6.2.4..... Recovery for the Pre-Accession Assistance – Cumulative results 2002-2011................. 43

6.3........ Conclusions.................................................................................................................. 43

7........... DIRECT EXPENDITURE – CENTRALISED DIRECT MANAGEMENT................. 43

7.1........ Introduction.................................................................................................................. 43

7.2........ Analysis of irregularities reported as fraudulent............................................................... 43

7.2.1..... Financial amounts involved............................................................................................ 43

7.2.2..... Recoveries by geographic area and Member State........................................................ 43

7.2.3..... Method of detection..................................................................................................... 43

7.2.4..... Types of error.............................................................................................................. 43

7.2.5..... Time delay.................................................................................................................... 43

7.3........ Recovery...................................................................................................................... 43

7.4........ Conclusions.................................................................................................................. 43

ANNEXES................................................................................................................................ 43

ANNEX 1 – SUMMARY OF FINANCING OF THE GENERAL BUDGET BY CLASS OF OWN RESOURCE AND BY MEMBER STATE, IN MILLION EUR................................................................ 43

ANNEX 2 - EVOLUTION OF BUDGET PAYMENT APPROPRIATIONS BY HEADING IN 2011 (IN MILLION EUR)........................................................................................................................... 43

ANNEX 3 – NUMBER OF CASES OWNRES AND AMOUNTS – PERIOD 2008-2011 PER MEMBER STATE 43

ANNEX 4 – OWNRES CASES PER MEMBER STATE......................................................... 43

ANNEX 5 – IMPACT ON CUSTOM PROCEDURE FREE CIRCULATION......................... 43

ANNEX 6 – TOP 10 CHAPTER HEADINGS.......................................................................... 43

ANNEX 7 – GOOD AFFECTED BY FRAUD AND IRREGULARITY – PERIOD 2009-2011 43

ANNEX 8 – FRAUD AND IRREGULARITIES: BREAKDOWN BY ORIGIN OF GOODS.. 43

ANNEX 9 – SEIZED AND CONFISCATED GOODS (cigarette CN 2402 2090)................... 43

ANNEX 10 – PERCENTAGE CLASSIFICATION OF FRAUD PER MEMBER STATE 2009-2011 43

ANNEX 11 – AMOUNTS INVOLVED IN FRAUD PER MEMBER STATE PERIOD 2009-2011 43

ANNEX 12 - METHODS OF DETECTION OF OWNRES CASES – YEAR 2011................ 43

ANNEX 13 – CUSTOMS PROCEDURES AFFECTED TO FRAUD AND IRREGULARITY IN 2011 – BASED ON ESTABLISHED AMOUNTS...................................................................................... 43

ANNEX 14................................................................................................................................ 43

ANNEX 15 – RECOVERY RATE TRADITIONAL OWN RESOURCES (RR)...................... 43

Annex 16 – Administrative stage of all closed cases from 1989 to 2011....................................... 43

ANNEX 17: AGRICULTURAL EXPENDITURE FINANCIAL YEARS 2004-2011............... 43

ANNEX 18: REPORTING YEARS 2004–2011 – cases of irregularities reported as fraudulent.. 43

ANNEX 19 FINANCIAL YEAR 2004 – detailed figures on cases, amounts, rates and levels..... 43

ANNEX 20: FINANCIAL YEAR 2005 – detailed figures on cases, amounts, rates and levels.... 43

ANNEX 21: FINANCIAL YEAR 2006 – detailed figures on cases, amounts, rates and levels.... 43

ANNEX 22: FINANCIAL YEARS 2004–2006 – beneficiaries and cases of irregularities reported as fraudulent 43

ANNEX 23 – EUROPEAN FISHERY FUND.......................................................................... 43

ANNEX 24 – COHESION FOR GROWTH AND EMPLOYMENT POLICY* - GENERAL TRENDS 43

ANNEX 25 - REGULATION No 1681/94: IRREGULARITIES REPORTED IN 2011............ 43

ANNEX 26 - REGULATION No 1828/2006: IRREGULARITIES REPORTED IN 2011........ 43

ANNEX 27 - REGULATION No 1828/2006: RECOVERIES IN 2011.................................... 43

ANNEX 28 - REGULATION N. 1831/94: IRREGULARITIES COMMUNICATED BY MEMBER STATES UNDER IN 2011....................................................................................................................... 43

ANNEX 29 - PRE-ACCESSION ASSISTANCE: IRREGULARITIES REPORTED IN 2011. 43

ANNEX 30 - INSTRUMENT FOR PRE-ACCESSION: IRREGULARITIES REPORTED IN 2011 43

ANNEX 31 - IRREGULARITIES REPORTED BY MEMBER STATES IN 2011.................... 43

COMMISSION STAFF WORKING DOCUMENT

Statistical Evaluation of Irregularities reported for 2011 Own Resources, Natural Resources, Cohesion Policy, Pre-Accession and Direct Expenditure

Accompanying the document

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND TO THE COUNCIL

Protection of the European Union's financial interests - Fight against fraud Annual Report 2011

LIST OF ABBREVIATIONS

ABAC || Accrual Based Accounting

AFIS || Anti-Fraud Information System

CN || Combined Nomenclature

COCOLAF || Advisory Committee for the Coordination of Fraud Prevention

CSWD || Commission Staff Working DocumentDocument

DG AGRI || Directorate General for Agriculture and Rural Development

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

DG MARE || Directorate General for Maritime Affairs and Fisheries

DG REGIO || Directorate General for Regional Policy

DG TAXUD || Directorate General for Taxation and Customs Union

EAFRD || European Agricultural Fund for Rural Development

EAGF || European Agricultural Guarantee Fund

EAGGF || European Agricultural Guidance and Guarantee Fund

EC || European Commission

EFF || European Fishery Fund

EP || European Parliament

ERDF || European Regional Development Fund

ESF || European Social Fund

EU || European Union

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

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

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

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

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

EUR || Euro

EURATOM || European Atomic Energy Community

FAL || Fraud Amount Level

FFL || Fraud Frequency Level

FIFG || Financial Instrument for Fishery Guidance

FinR || Financial Regulation

FrR || Fraud Rate

FY || Financial Year

GNI || Gross National Income

IMS || Irregularity Management System

IPA || Instrument for Pre-Accession

IrR || Irregularity Rate

OLAF || European Anti-Fraud Office

OWNRES || Own Resources

PAA || Pre-Accession Assistance

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

PIF Report || Annual Report on the Protection of the EU financial interests

TFEU || Treaty on the Functioning of the European Union

TOR || Traditional Own Resources

VAT || Value Added Tax

WOMIS || Write-Off Management and Information System

PART I – INTRODUCTION

1. INTRODUCTION

1.1. Scope of the document

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

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

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

The methodology, the data sources and the data capture systems are explained in detail in the Commission Staff Working Document – Methodology for the Statistical Evaluation of Irregularities.

1.2. Structure of the document

The present document is divided in three parts.

The first introductory part is composed of two chapters which contain, respectively: the structure and scope of the document and a short description of the European Budget and its different “management” modes.

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

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

2. THE EUROPEAN UNION BUDGET (Annexes 1-2)

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

2.1. Revenues

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

– Traditional own resources (TOR) — these consist of customs duties that are charged on imports of products coming from a non-EU state. In addition a small part of the revenue comes from sugar levies collected from EU sugar producers.

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

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

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

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

The total EU revenue for 2011 amounts to about EUR 126.5 billion. Annex 1 provides a summary of financing by type of own resource and by Member State; Chart 2-1 shows how the four elements indicated above contribute to the EU budget.

Chart Error! No text of specified style in document.‑1: Source of financial resource to the European Budget

2.2. Expenditure

The EU Budget for 2011 includes 5 headings of expenditure:

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

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

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

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

– The administrative expenditure includes the running costs for the European Institutions.

Chart 2-2 shows the distribution of the EU financial resources among the six different headings in commitment appropriations, while Annex 2 provides a more detailed overview of the 2011 budget (in commitment and payment appropriations).

Chart Error! No text of specified style in document.‑2: Distribution of the expenditure financial resource by Budget Heading

The total payment appropriations for 2011 amount to EUR 126.5 billion.

2.3. Management of the Budget

According to article 317 of the TFUE, the Commission shall implement the budget. Council Regulation (EC, Euratom) No 1605/2002[2] of 25 June 2002 on the Financial Regulation (FinR)[3] applicable to the general budget of the EU indicates that the Commission implements the budget:

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

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

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

PART II - REVENUES

3. TRADITIONAL OWN RESOURCES (Annexes 3-16)

3.1. Management of Traditional Own Resources (TOR)

3.1.1. Monitoring of establishment and recovery of TOR

In order to get the right picture of Member States’ TOR recovery activity, it is important to keep in mind that 98% of established TOR is subsequently recovered without any particular problem. These amounts are entered in the A-account and made available to the EU budget. This covers most of the ‘normal’ import flows where release for free circulation gives rise to a customs debt. The remaining exceptional items are entered in the B-account. This should be borne in mind, when evaluating Member States’ recovery activity.

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

The following three methods are used:

(1) Overall monitoring of recovery of TOR via the write-off procedure as provided for in Article 17(2) of Regulation No 1150/2000;

(2) Regular inspection in Member States of the establishment and recovery of TOR and B-account entries as provided for in Article 18 of Regulation No 1150/2000;

(3) Specific monitoring (in close cooperation with European Anti-Fraud Office (OLAF), the Directorate-General for Taxation and Customs Union (TAXUD) and the Directorate-General for Agriculture and Rural Development (AGRI)) of Member States’ follow-up of recovery in individual cases, which have a significant financial impact and which may involve Mutual Administrative Assistance.

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

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

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

(a) for reasons of force majeure; or

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

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

Member States submit their requests to be released from the obligation to make the TOR available directly via an IT application called WOMIS[4]. In 2011 a WOMIS version 2.0 was released.

In 2011 218 write-off reports amounting to EUR 61.5 million were communicated via WOMIS to the Commission by 17 Member States. The table below shows those cases have been processed by the Commission in 2011 with the following results:

Table OR1: Write-off reports treated in 2011

MS || Cases[5] || Total amount || Acceptance || Refusal || Additional information request

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

AT || 22 || 7.518.020 || 11 || 2.819.216 || 2 || 232.478 || 9 || 4.466.325

BE || 16 || 6.008.748 || || || 1 || 120.840 || 10 || 5.079.355

CZ || 4 || 306.216 || 4 || 306.216 || || || ||

DE || 91 || 15.605.657 || 31 || 6.287.550 || 6 || 866.125 || 46 || 7.704.085

DK || 1 || 196.860 || || || || || 1 || 196.860

ES || 16 || 4.844.534 || 5 || 1.563.508 || 7 || 1.452.123 || 4 || 1.828.903

FI || 3 || 295.411 || || || || || 1 || 111.641

FR || 11 || 5.014.018 || 6 || 601.312 || 5 || 4.412.707 || ||

UK || 8 || 8.429.677 || 5 || 1.221.983 || 1 || 6.999.492 || 1 || 66.750

HU || 3 || 658.034 || 3 || 658.034 || || || ||

IT || 12 || 2.562.676 || 2 || 181.374 || 9 || 2.255.704 || 1 || 125.598

LT || 2 || 165.825 || 1 || 64.634 || || || 1 || 101.191

LV || 7 || 911.958 || 3 || 320.782 || 2 || 323.868 || 2 || 267.308

NL || 1 || 1.114.350 || || || || || 1 || 1.114.350

PT || 17 || 6.595.785 || 2 || 118.044 || 11 || 5.103.092 || 4 || 1.374.649

SE || 1 || 360.003 || || || || || 1 || 360.003

SK || 3 || 916.044 || || || || || 3 || 916.044

Total || 218 || 61.503.816 || 73 || 14.142.653 || 44 || 21.766.429 || 85 || 23.713.062

In addition, 245 cases which had been communicated before 2011 to the Commission have been processed in 2011 with the results showed in Table OR2.

Table OR2: Results of cases communicated before 2011 processed in 2011

MS || Cases[6] || Total amount || Acceptance || Acceptance || Refusal || Refusal || Additional information request || Additional information request

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

BE || 8 || 1.443.109 || 5 || 770.820 || 3 || 672.290 || ||

DE || 144 || 83.972.636 || 85 || 62.938.798 || 20 || 2.486.292 || 36 || 16.772.522

DK || 2 || 782.594 || || || 2 || 782.594 || ||

ES || 45 || 15.185.139 || 8 || 5.110.026 || 17 || 3.330.898 || 20 || 6.744.215

FI || 3 || 346.823 || 3 || 346.823 || || || ||

FR || 4 || 5.401.098 || 3 || 5.166.948 || || || 1 || 234.150

IT || 20 || 20.593.145 || || || 20 || 20.593.145 || ||

LV || 1 || 109.969 || 1 || 109.969 || || || ||

NL || 17 || 24.320.060 || 17 || 24.320.060 || || || ||

UK || 1 || 181.222 || 1 || 181.222 || || || ||

Total || 245 || 152.335.795 || 123 || 98.944.666 || 62 || 27.865.219 || 57 || 23.750.887

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

3.1.3. Particular cases of Member State failure to recover TOR

If TOR are not established because of an administrative error by a Member State, the Commission applies the principle of financial liability[7]. In 2011 Member States have been held financially liable for over €26 million and new cases are being given appropriate follow-up.

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

3.2. General trends

The number of cases communicated to OWNRES for 2011 is currently 15% lower in comparison with 2010 (from 5 544 to 4 696). The amount of TOR involved is 27% lower (from EUR 439 million to EUR 321 million)[8]. All data and comparisons in this report are drawn up from queries made in OWNRES on 12 March 2012 (cut-off date). A comparison between data from this year's report to data from the previous year report where the cut-off data was on 4 March 2011 shows that the differences between 2011 and 2010 are smaller: The number of cases in 2010 was at that time 4 744 while the number of cases for 2011 is 4 696. This is a decrease of 1%. The amount of TOR is 18% lower (from EUR 393 million in 2010 to € EUR 321 million in 2011).

The number of communications from the ten new Member States showed continued growth since their accession in 2004 until 2007. From 2007 to 2009 the communicated cases remained stable. In 2010 and 2011 the communicated cases declined, although the amount of TOR increased.

The number of communications from Bulgaria and Romania peaked in 2010 at 152 cases. However, in 2011 the number of communications fell to 83 cases for both countries.

The OWNRES database now contains 68 510 cases in total (1989-2011) and shows an increase of 9% during 2011. Significant changes in the number of registrations in 2011 compared with 2010 can be seen for Latvia (+ 89%), Finland (+ 72%), Denmark (+ 52%), Cyprus (- 64%), Austria (- 54%), Slovenia (- 52%), Malta (- 50%) and Romania (- 48%). Significant changes of amounts can be seen in Lithuania (+ 714%), Finland (+ 184%), Poland (+ 179%), Belgium (-76%), Denmark (-85 %), Czech Republic (- 69%) and Slovakia (-69 %)[9].

With the exception of the year 2010, the number of belatedly discharged transit operations decreased continually in the previous years.[10] In the case of transit, practice shows that 60-90% of the initially established debts are ultimately cancelled, because of proof of regular discharge after all.

3.2.1. Types of irregularity and fraud

A breakdown of frauds and irregularities by customs procedure and by mechanism type confirms that most cases of irregularity or fraud relate to the procedure of release for free circulation (80% of established amounts[11]). False declarations (incorrect classification, incorrect value, incorrect country of origin and incorrect use of preferential arrangements) and formal shortcomings (failure to fulfil obligations or commitments) are the mechanisms most frequently mentioned, but also smuggling is highly placed.

The goods (defined by the first two numbers of the CN code[12]) the most affected by fraud and irregularities in 2011, as in previous years, are TVs/monitors etc. (CN 85) and Tobacco / cigarettes (CN 24). Furthermore, Articles of Iron and Steel (CN 73) and Oil (CN 15) increased in importance when compared to 2010. Sugar (CN 17) decreased in importance and was not listed anymore in 2011 in the TOP 10 Chapter Heading list.[13]

Chart OR1: Fraud and irregularities breakdown by good in 2009 (in million EUR)[14]

Evaluation of the origin of goods subject to fraud and irregularity[15] reveals that, just as in 2010, goods originating from China and the USA remain very much affected. The number of cases originating from Indonesia, Taiwan and Malaysia has increased. Zimbabwe is listed as top 4 country of origin which results from one big case involving EUR 15 million detected in Lithuania. Ecuador has decreased in importance as country of origin in comparison with the last year.

3.2.2. TOR and cigarettes

In 2011 there were 145 cases registered of seized and confiscated cigarettes (CN code 24 02 20 90) involving estimated TOR of around EUR 26 million. In 2010 the number of registered cases concerning seized and confiscated goods was 212, totalling around EUR 25 million. Greece has reported the highest amount of seized and confiscated cigarettes (EUR 10,6 million). No cases have been indicated by Austria, Germany, Denmark, Spain, Luxembourg, Portugal, Cyprus, the Czech Republic, Estonia, Malta and Romania[16].

3.2.3. Data main sectors TOR

See Annexes 3-10.

3.3. Detection of fraud and irregularity[17]

Of all the cases registered in OWNRES in 2011 15% (723 out of 4 696 registered cases) are categorised as fraud, which is less than in 2010[18]. However, like in previous years, the differences between Member States are relatively large. In 2011 most of the Member States categorised between 10-50% of all cases as fraud. However, four Member States categorised zero cases as fraud.[19] Seven Member States categorised between 1% and 10% of the cases as fraud.[20] Five Member States registered more than 50%[21] of the cases as fraud. These figures demonstrate that the distinction in OWNRES between fraud and irregularity might not be fully comparable between different Member States. In their reports Member States make this distinction usually on subjective grounds and before any court judgment is given. Such subjective grounds vary between national administrations depending on their national practises and legislation. It should also be noted that for open cases such a classification is not static in OWNRES but can be changed by the Member State at any time in the course of the national process. According to OWNRES the moment of discovery is an indicator for classifying a case as fraud, since primary inspections more often result in classifying cases as fraud than post-clearance inspections.

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

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

A range of detection methods can reveal irregularity or fraud. Judging from the 2011 data, most cases have been revealed by national post-clearance inspections and primary national inspections (either physical inspections or inspections of documents — the latter category featuring most frequently). Post-clearance inspections feature in 46% of the cases discovered, whereas primary national inspections cover 24%. All in all, the vast majority of cases (70%) were detected in 2011 by means of either primary national inspections or post-clearance inspections.

It is clear that the shift from primary to post-clearance inspections, which could already be seen in previous years, continued in 2011. The relative importance of inspections by anti-fraud services was stable with 8% in 2010 and also in 2011. Since the final results of such inspections take more time than regular inspections, a (slight) increase in the percentage for 2011 may be expected in future registrations.

CHART OR 2: Method of detection 2009-2011

3.3.1.1. Method of detection of fraud cases

In 2011, most fraud cases (38%) were revealed during a primary national inspection (either physical inspections or inspections of documents). Other methods of frequently featured methods of detection for fraud discovery were inspections by anti-fraud services (21%), national post-clearance inspections (19%) followed by tax audits (17%).

CHART OR 3: Method of detection of fraud cases 2009-2011

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

The map below illustrates by which methods OWNRES cases - in established amounts - have been discovered by the Member States[22] in 2011. For reasons of presentation the following methods are included in the term "ex-post controls": audit of the accounts, Union inspections, inspections by anti-fraud services, inspection visits, national post-clearance audits and tax audits. In EUR – 27 around 14% of all cases – in established amounts – have been discovered by primary inspections, whereas 81% of all cases – in amounts – have been detected via "ex-post controls". In the following four Member States more than 40 % of all cases – in amounts – have been detected by primary inspections: Finland (79%), Italy (48%), Cyprus (48%) and Bulgaria (59%). More than 90% of all cases – in amounts – have been detected by "ex-post controls" in Greece (99%), Ireland (100%), Netherlands (93%), Portugal (92%), Sweden (100%), United Kingdom (93%), Lithuania (97%), Malta (100%), Poland (92%), Slovenia (99%) and Romania (99%). In three Member States more than 10 % of all cases – in amounts- have been detected by voluntary admission.[23]

MAP OR 1: Visualising the method of detection[24]

3.3.2.1. Method of detection expressed in monetary terms - for fraud cases

Of all fraud cases registered in OWNRES in 2011, around 20% of all fraud cases – in established amounts – have been discovered by primary inspections, whereas 79% of all cases – in amounts – have been detected via "ex-post controls". In the following four Member States more than 50% of all fraud cases – in established amounts – have been detected by primary inspections: Finland, the United Kingdom, the Netherlands, and Poland. For 18 Member States, more than 50% of all fraud cases – in amounts – have been detected by "ex-post controls". Three Member States reported fraud cases which were admitted voluntarily.[25]

3.3.3. Customs procedures affected to fraud and irregularity in 2011- in amounts

In 2011, the majority of established amounts in OWNRES (80%) in EU-27 are related to the customs procedure "release for free circulation".[26] 7% of all established amounts of OWNRES cases in 2011 involve the transit procedures whereas it was only 3% in 2010. Furthermore, 6% of all established amount of OWNRES relate to the customs warehousing and 5% to the inward processing. Between the Member States there are however significant differences. In Lithuania 93% of all established amounts of OWNRES cases relate to the transit procedure, whereas 3 % relate to the release for free circulation. Moreover, customs warehousing was much affected, in amounts, in Finland (54%) and Belgium (38%). Finally, 3% of all established amounts in EUR-27 fall under the category "Other". This category combines, among others, the following procedures or treatments: Processing under customs control, temporary admission, outward processing and standard exchange system, exportation, free zone or free warehousing, re-exportation, destruction and abandonment to the Exchequer. In Malta 100% of the established amounts concerned the "destruction", in Greece 56% of the established amounts are related to "re-exportation" and in Romania 69% relate to the "processing under customs control".

3.3.3.1. Customs procedures affected to fraud in 2011- in amounts

In 2011, the majority of established amounts (71%) for fraud cases in EU-27 are related to the customs procedure "release for free circulation". 20% of all established amounts of OWNRES fraud cases in 2011 involve the transit procedures[27]. 5% of all established amounts where fraud was at stake affect the customs warehouse procedure. Fraud cases related to customs warehousing procedure concerned especially Finland, Germany and Romania. Fraud in inward processing procedure was only detected in Spain.

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

As indicated before the biggest part of all amounts of TOR established are recovered without any particular problem and made available to the Commission via the A-account. For 2011 around EUR 22.4 billion TOR (gross) have been collected by the Member States and thereafter made available to the EU budget after deduction of 25% collection costs. These amounts relate mainly to ‘normal’ import flows where goods are declared for a customs procedure (e.g. release for free circulation) giving rise to a customs debt. In comparison, according to the OWNRES communications, around EUR 388 million have been established and estimated by the Member States in connection to detected cases of fraud and irregularities where the amount at stake exceeds EUR 10 000. For EU-27 the established and estimated amounts reported in OWNRES represent 1.73% of the collected TOR (gross) of 2011.[28] This proportion has decreased in comparison to the previous year where a percentage of 2.00% was calculated. A percentage of 1.73% reflects that out of each EUR 100 of TOR (gross) collected an amount of irregularity or fraud is registered in OWNRES of EUR 1.73. Within the Member States there are differences. In 10 Member States the percentage is equal or above the average of 1.73%. The highest percentage can be seen in Lithuania with 27.79%. In 9 Member States the percentage is below 1%. In 14 Member States the percentage is between 1% and 3%. Luxembourg did not report any OWNRES cases in 2011. For EUR-15 the established and estimated amounts reported in OWNRES represent 1.65% of the collected TOR, whereas in EUR-12 the established and estimated amounts reported in OWNRES represent 2.84% of the collected TOR. The percentage can significantly vary from one year to another. For example, Austria had a proportion of 4.37% in 2010, whereas the proportion dropped to 1.39% in 2011. Furthermore, the percentage in Denmark declined from 5.89 % in 2010 (above the average) to 0.92 % in 2011 which is below the average. The biggest increase can be seen in Lithuania from 3.88% in 2010 to 27.79% in 2011. The 7 Member States[29] which collected most TOR show, in comparison to the previous year, a relatively stable proportion between established and estimated OWNRES amounts to collected TOR. With the exception of Italy and Spain the difference to the previous year is less than 0.5 percentage points in those Member States.

Especially in Member States with a smaller share of TOR collection, individual bigger fraud cases detected in a certain year may affect importantly the annual percentage. Several factors influence this percentage, e.g. the type of traffic and trade, the level of compliance of the economic operators, and, the location of a Member State. Under these variable factors the percentage is also affected on the way how the Member State's customs control strategy is set up to target risky imports and to detect TOR related fraud and irregularity.

In recent years the Commission has in its TOR inspections put a special emphasis on Member States' customs control strategies and is monitoring closely Member States' action in relation to the observations made during its inspections[30].

MAP OR 2: visualising the percentage of established or estimated amounts in OWNRES to collected TOR

3.4. Recovery and Follow-up

3.4.1. Recovery rate

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

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

OWNRES shows that in average 43% of the initially established amount was corrected (cancelled) since 1989. For closed cases related to transit this may reach up to 90%. As a consequence, Belgium and the Netherlands show more corrections than average, because establishments related to transit occur more frequently. This is due to the ports of Antwerp and Rotterdam.

Differences in recovery results arise from factors such as the type of fraud or irregularity or the type of debtor involved. The recovery rate for all years (1989-2011) is 50%[31].

The overall recovery rate for 2010 recorded in the last year’s report was 46%, although it has since then climbed to 51%. At present the recovery rate for 2011 is 52%[32]. In other words, of every EUR 10 000 of duties established in 2011 in OWNRES, approximately EUR 5 200 has already been paid. Because recovery is ongoing, the recovery rate is constantly changing.

There are big differences of the recovery rate within the Member States. The highest recovery rates are in Estonia (100%), Slovakia (90%), Denmark (81%) and Germany (81%).

3.4.2. Recovered amounts

Irregularity and fraud cases which have been detected in 2011 show an established amount of EUR 321 million. Thereof EUR 155 million were recovered for cases of irregularities and EUR 10 million for cases of fraud in EU-27. In total EUR 166 million were recovered by all Member States for the cases which were detected in 2011. In absolute numbers Germany recovered most with EUR 62 million followed by the United Kingdom with EUR 32 million in 2011. The lowest recovery rates were in Greece (2%) and Lithuania (4%). In addition, the Member States continued their recovery actions related to detected cases of previous years. EU-27 recovered EUR 305 million in 2011 which related to detected cases between 1989 and 2011.

3.4.3. Administrative stage - from 1998 to 2011

68 510 cases have been communicated in OWNRES from all Member States. Thereof 9 528 cases are still open. 58 982 cases have been closed, which means that certain financial stage has been reached. 87% of the cases were closed in an administrative procedure.[33] The term "administrative procedure" includes the following administrative stages: Administrative investigation, administrative procedure (debt established), administrative appeal or review. 8% of the cases concluded with a remission procedure, write-off procedure for non-recoverable debts or the non-establishment due to an administrative error. Of all cases 5% are closed with a judicial procedure. Until a final decision of a court is given, the OWNRES case remains open. From 1989 to 2011 OWNRES cases were relatively often subject to judicial procedures in the following countries: Estonia (29% of all closed OWNRES cases), in Latvia (27%), Italy (25%) and in Greece (20%). In Finland, Ireland, Luxembourg and Cyprus zero cases were closed in a judicial procedure.

3.5. Conclusions

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

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

(2) The goods involved in irregularities and frauds demanding Member States’ attention are very diverse. TVs keep their relevance in 2011 and are like in previous years the most important goods involved in registered cases of irregularity or fraud. Tobacco, cigarettes and oil gained significance. The origin of the goods concerned is likewise varied, although some countries remain continuously at the top of the rankings (such as China and the USA). Some Asian countries (Taiwan, Malaysia and Indonesia) and Zimbabwe were of more importance in 2011.

(3) The established amounts of TOR at stake in irregularity and fraud are, according to OWNRES, EUR 321 million in 2011. Based on experience from previous years, it is likely that this figure for 2011 will change in future years due to new establishments and/ or corrections of establishment.

(4) The methods of detection vary between Member States, however, in 2011 post-clearance inspections and primary controls (during the clearance) are creating 70 % of all OWNRES cases. Thereof, the shift from primary (24%) to post-clearance inspections (46%) continued in 2011. According to OWNRES the moment of discovery is an indicator for classifying a case as fraud, since primary inspections more often result in classifying cases as fraud than post-clearance inspections. However, during 'ex-post' controls fraud cases with relatively high amounts are detected.

(5) The customs procedure release for free circulation was like in the previous years the most affected to fraud and irregularities. 80% of all amounts reported in OWNRES have been detected under the release for free circulation. However, there are differences between the Member States. In some Member States most cases have been detected during the transit procedure, customs warehousing, inward processing, free zone or destruction (of cigarettes).

(6) For EU-27 the established and estimated amounts in OWNRES represent 1.73% of the collected TOR for 2011. The percentage varies between the Member States and between the years.

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

PART III - EXPENDITURE

4. PRESERVATION AND MANAGEMENT OF NATURAL RESOURCES (AGRICULTURE AND FISHERIES)

4.1. Agricultural expenditure (Annexes 17-22)

The Common Agricultural Policy (CAP) has been one of the most important common policies over the years, as a large part[34] of the European Union's (EU) budget is spent in the agricultural sector.

The CAP-objectives for the coming years is an agriculture that is competitive on world markets, which respects very strict standards on environment, food safety, and animal welfare, within a framework of a sustainable and dynamic rural economy.

The agricultural expenditure is financed by 2 funds:

· EAGF

· EAFRD

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

The EU-budget for the year 2011 was about EUR 126.5 billion. Approximately EUR 55.5 billion was spent in the agricultural sector, of which EAGF and EAFRD expenditure account for respectively EUR 43.3 billion and EUR 12.2 billion. Annex 17 provides a detailed overview of the agricultural expenditure concerning the financial years 2004-2011.

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

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

Commission Regulation (EC) No 1848/2006 obliges Member States to report irregularities. Member States submit their irregularity reports via IMS Module 1848. Module 1848 was introduced in 2008 and was directly used by all Member States. It is a web based application that can be accessed via internet. Access via internet led to an enormous increase of the number of users of Module 1848. The total number of users increased from less than 50 in 2008 to more than 1,000 in 2011.

The data provided by Member States via Module 1848 is used for performing risk analysis as described in article 10 of Regulation No 1848/2006[35] and to inform the Advisory Committee for the Coordination of Fraud Prevention (COCOLAF) as described in article 9 of Regulation No 1848/2006[36].

The agricultural section of this report contains three parts: reporting year 2011, reporting years 2004-2011 and financial years 2004-2006. The first part contains an overview of new cases reported during 2011, Member States compliance with the reporting obligations and the recovery of unduly paid amounts. In the second part are the trends and developments in the agricultural sector described on basis of the cases reported during the years 2004-2011. The third part contains definitive figures, based on the analysis of the financial years 2004-2006 which years, from an irregularity reporting point of view, are considered to be finalised.

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

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

(2) Audit plans and programmes are still running for the period 2007-2011. This means that cases of irregularities still can be detected and reported, which could have a direct impact on the figures. The figures concerning the financial years 2007-2011, therefore, need to be seen as a half-time-result[37].

(3) Not all irregularities have to be reported. Member States must only inform OLAF of irregularities involving more than EUR 10 000. It is also good to bear in mind that 87% of the number of payments, representing 21% of the total expenditure, concern amounts below EUR 10 000 which implies that for these payments normally no irregularities will be reported[38].

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

4.2. Reporting Year 2011

4.2.1. Reporting Year 2011: cases reported

Table NR1 provides an overview per Member State of the number of cases of irregularities reported, the amounts affected and Member States' classification of the irregularities into "suspected fraud" or "established fraud"[39].

Table NR1: cases reported during Financial Year 2011

Member States reported 2 395 new cases of irregularities with a total amount affected of about EUR 178 million. These cases concern expenditures for the financial years 1995-2011. Italy reported the highest number of cases (590) as France reported the highest amounts affected (EUR 71.6 million).

France reported 2 suspected fraud cases with a total amount affected of more than EUR 65 million, which had a huge impact on the total amount affected by suspected fraud cases[40].

The number of cases that have been reported as fraudulent (suspected fraud or established fraud) is 139 (121 + 18), which is 6% of the total number of cases reported. The amount affected is 43% of the total amounts affected. The "fraud cases" are mainly reported by young Member States, especially Bulgaria (37), Poland (20) and Romania (25). Italy reported 16 fraud cases.

4.2.2. Reporting Year 2011: reporting discipline

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

Table NR2 provides an overview of the compliance rate per reporting obligation. Member States are ranked in order of their overall 2011 compliance rate, which can be found in the fifth column from the right hand side.

Table NR2: compliance per Member State

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

In 2011, the overall compliance rate[41] increased from 90% to 93%. Most Member States stabilized or improved their compliance rate during 2011. Finland made a big step forward in 2011 by increasing its compliance rate from 59% to 75%. For Finland as well as Poland count that the reporting of personal data should still get more attention. Timely reporting is still an issue for a large number of Member States but especially for Denmark, United Kingdom, Cyprus, Hungary and the Netherlands.

4.2.3. Reporting Year 2011: financial follow up of irregularity cases [42]

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

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

In the year 2011, the 50/50 mechanism was applied by the financial clearance decision for the financial year 2010 on all pending non-recovered cases dating from 2006 or 2002 (cases that were four or eight years old respectively). EUR 27.8 million was charged to the Member States in this way and EUR 29.2 million was borne by the EU budget for reasons of irrecoverability (out of the EUR 50.7 million declared irrecoverable by the Member States, EUR 21.5 million had already been cleared under the 50/50 and, therefore, the loss is shared between the EU and the Member States). A further EUR 0.6 million has been charged to the Member States in early 2012 by subsequent decisions that cleared the accounts for financial year 2010 of those paying agencies that were disjoined in April 2011.

During financial year 2011 Member States recovered from the beneficiaries EUR 172.7 million and the outstanding amount still to be recovered from the beneficiaries at the end of that financial year was EUR 1 206.9 million. Table NR3 on the right hand side provides an overview of the recovered, irrecoverable and outstanding amounts at the level of beneficiaries at the end of financial year 2011.

The financial consequences of non recovery for cases dating from 2007 or 2003 was determined in accordance with the 50/50 rule mentioned above by charging approximately EUR 12.6 million to the Member States concerned . Moreover, EUR 25.7 million was borne by the EU budget for cases reported irrecoverable during financial year 2011.

Due the application of the 50/50 mechanism since its introduction in 2006 important non-recovered sums have already been charged to the Member States for EAGF expenditure (EUR 458 million). Consequently, out of the EUR 1 206.9 million to be recovered from the final beneficiaries at the end of financial year 2011 the amount outstanding towards the EU budget is limited to EUR 943.5 million. As regards the recovery of undue payments financed by the EAFRD, it has to be noted that the 50/50 rule will only commence being applied after the closure of the rural development programmes.

The new clearance mechanism (50/50 rule) referred to above provides a strong incentive for Member States to recover undue payments from the beneficiaries as quickly as possible. As a result, by the end of financial year 2011, 44% of the new EAGF debts from 2007 and thereafter had already been recovered, which is a significant improvement compared to the past. See table NR4 on the right hand side.

During the years 2008-2011 the Commission was auditing the correct application of the new clearance mechanism through 18 on the spot controls in 13 Member States. In general, the Member States' authorities have adequate procedures in place to protect the financial interest of the European Union. Deficiencies found during these on the spot controls are being followed up in the context of conformity clearance procedures. The diligence of the Member States' authorities in the recovery of the most significant irregularity cases is assessed in the context of a further 19 conformity clearance procedures.

4.3. General trends

This paragraph provides an overview of trends and developments concerning the reporting years 2004-2011.

First, an overview is given of the expenditures for the financial years 2004–2011, followed by the cases of irregularities reported during the same period. These cases of irregularities do not only relate to the expenditures concerning the financial years 2004-2011 but also to expenditures of the financial years 1990–2004. Cases of irregularities are normally detected and reported some years after the expenditure due to for instance audit plannes which spread audits over the years and due to the type of support measures[43].

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

4.3.1. Reporting Years 2004-2011: expenditure

Chart NR5 provides an overview of the total expenditure for the reporting years 2004–2011. The amounts are indicated in EUR billion.

Chart NR5: expenditure 2004-2011

Chart NR5 shows that from 2007 onwards the expenditure increased with about EUR 2 billion per year. Annex 17 provides a more detailed overview per Member State. France is the Member State with the highest expenditure. It spent more than EUR 78 billion which is on average approximately 20% of the total agricultural budget. Malta is the Member State with the lowest expenditure and spent approximately 65 million which is about 0.02% of the total agricultural expenditure.

France, Spain, Germany and Italy together are responsible for almost 60% of the total agricultural expenditure. Spain and Germany had an expenditure of respectively EUR 52 billion and EUR 51 billion which is approximately 13% of the total expenditure. Nine Member States had an expenditure smaller than 1% of the total agricultural expenditure.

4.3.2. Reporting Years 2004-2011: cases of irregularities

Member States reported 17,758 cases of irregularities during the reporting years 2004–2011. The total amount affected by these irregularities is EUR 918 million.

Chart NR6 provides per reporting year an overview of the number of cases of irregularities reported and the amounts affected.

Chart NR6: cases of irregularities and amounts affected (2004 – 2011)

A strong downfall can be noticed in 2007 and 2008. This strong downfall can be explained by the CAP-reform "decoupled direct aids" and the introduction of a new and higher threshold under which no irregularities have to be reported[44].

Chart NR6 also shows that the cases of irregularities and the amounts affected increased from 2009 onwards. This trend can be explained by a higher agricultural expenditure, the introduction of IMS in 2008, the strong growth of IMS-users over the last years and efforts made by Member States and Commission to increase the quality of irregularity reporting.

The peak of the amounts affected by irregularities in 2011 is caused by two French cases with a total amount affected of about EUR 65 million. Both cases concern one specific fraud which should already have been reported in the period 2001–2003. These two cases led to a distorted picture for the year 2011[45]. If these two cases would be left aside, the total amount affected would be approximately EUR 120 million which is in line with the years 2009 and 2010.

Remarkable is that the number of cases of irregularities reported by the top three spenders decreased. France, Germany and Spain report less and less cases. Chart NR7 visualises this downfall.

Chart NR7: cases reported by France, Spain and Germany

France, Germany and Spain were in 2004 still responsible for the reporting of more than 60% of the total number of cases. That percentage decreased over the years to less than 20% although their part in the total expenditure stayed more or less at the same level.

4.3.3. Reporting Years 2004-2011: cases of irregularities reported as fraudulent

Member States reported during the reporting years 2004–2011 in total 1,211 cases of suspected fraud. The total amount affected by these cases is EUR 244 million. Chart NR8 provides per reporting year an overview of the number of cases reported and amounts affected.

Chart NR8:irregularities reported as fraudulent

From 2004 till 2007 included the number of cases and amounts affected increased. In 2008 a downfall, due to CAP-reform and higher reporting threshold, and then again an increase of the number of cases and amounts affected till 2010.

In 2011, a downfall of the number of cases can be seen and an increase of the amounts affected. However, the increase of the amounts affected by irregularities reported as fraudulent is caused by the above already mentioned two French cases with a total amount affected of about EUR 65 million[46]. If these two cases would be left aside, the amount affected by cases of irregularities reported as fraudulent would also have decreased.

Remarkable is that especially the new Member States and Italy report fraudulent cases. Poland reported with 297 cases the highest number, followed by Italy with 279 cases. Other Member States with high number of cases reported as fraudulent are Bulgaria, Romania and Hungary with 162, 101 and 63 cases respectively. No such cases were reported by Luxembourg and Malta.

The top three spenders (France, Spain and Germany) reported 52, 49 and 20 cases respectively, which is about 10% of the total number. To recall, the total expenditure of the top three spenders is almost 50% of the total agricultural budget. On basis of their part in the expenditure, a higher number of irregularities reported as fraudulent could be expected.

The sectors most affected by irregularities reported as fraudulent are rural development, decoupled direct aids and other direct aids. These sectors were indicated in respectively 637, 363 and 113 cases, which is more than 90% of the total number of cases of irregularities reported as fraudulent. Annex 18 provides for all sectors an overview of the number of cases and the amounts affected.

The number of irregularities reported as fraudulent in which the sector rural development was mentioned is more than 50% of the total number of suspected fraud cases.

Most applied modus operandi in the sector rural development is overdeclaration of land. Table NR10 provides an overview.

Table NR10: sector rural development - Modus Operandi top 7

Member Sates indicated for 262 cases of irregularities reported as fraudulent that the applied modus operandi was overdeclaration of land. Striking is that 260 cases are reported by Bulgaria and Poland with respectively 67 and 193 cases. The other 2 cases were reported by France and Italy. This does not mean that overdeclaration does not take place in other Member States. Other Member States also reported cases of overdeclaration but did not reported their cases as fraudulent.

The reported cases concerning overdeclaration of land can be roughly subdivided into 4 categories:

1. simple overdeclaration caused by calculation or measuring errors;

2. intentional overdeclaration by overcalculating or overmeasuring;

3. overdeclaration by declaring land not suitable or eligible for support;

4. declaration of non-owned land.

ad 1. simple overdeclaration

This type is caused by a simple calculation or measuring error due to for instance the shape of the land. It concerns normally small differences. The beneficiary is not aware that too many square meters were declared. These cases are normally classified as "irregularity".

ad 2. intentional overdeclaration by overcalculating or overmeasuring

Overcalculation or overmeasuring was done intentionally by adding extra square meters to the total or by measuring for self-benefit in order to get a higher financial support. The beneficiary is aware of the fact that he is declaring more square meters. These cases are normally classified as "suspected fraud".

ad 3. overdeclaration by declaring land not suitable or eligible for support

Beneficiary includes in his declaration also land that is not suitable or eligible for support. The land is owned by the beneficiary but does not fulfil the conditions. Beneficiary is aware of the fact that not all declared land is suitable or eligible but has the attitude "let's try" or "let's see if they notice it". These cases are normally classified as "suspected fraud".

Example: beneficiary owns 100 hectares of land of which 25 hectares are eligible for aid. He declares a surface of 75 hectares.

ad 4. declaration of non-owned land

Beneficiary includes in his declaration also land that is owned and used by a third person. This could be land that is suitable or eligible for financial support but also land that is not suitable or eligible for financial support. The risk of double payment exists now also the legitimate owner could apply for financial support. These cases are normally classified as "suspected fraud".

Example: beneficiary receives financial support for agricultural activities in less favoured areas. The land was not owned by the beneficiary but leased. A lease contract was included in the documentation that was handed over when the financial support was requested. An audit learned that no lease contract existed between the owner of the land and beneficiary. The land was also still farmed by the owner.

Member States indicated in 449 cases concerning the sector rural development that the Modus Operandi was overdeclaration. As already mentioned above, 262 cases were committed intentionally thus reported as fraudulent. 28 of these cases have already been confirmed by Court' decisions. 187 cases were reported as non-fraudulent.

Table NR11 provides an overview how Member States classified cases of overdeclaration concerning the sector rural development.

Table NR11: classification of cases of overdeclaration

The impression is that Member States do not interpret and classify cases of overdeclaration in the same way. The latter was reason to put the classification of cases of overdeclaration on the agenda of the meeting "irregularities and mutual assistance – agricultural products" of April 2012. Commission and Member States discussed on basis of a case study the classification in order to harmonize the interpretation and classification of cases. Prior to the meeting, Member States were asked to interpret the facts and to analyse and to classify the case. Member States' interpretation of the facts led to different classifications. It proved that Member States do not interpret and classify cases in the same way. Especially the question if an irregularity has been committed intentionally or not led to different opinions and positions. The discussion will certainly get a follow up in order to harmonise the process of irregularity reporting.

In addition has to be mentioned that Member States did not classify some of their cases as suspected fraud although penal sanctions were imposed or penal procedures were started. Member States explanations for not classifying such cases as suspected fraud vary between "simple mistake" and being afraid for consequences (in private!) in case of a wrong classificiation. In some Member States, civil servants can be held in person liable for their acts.

4.4. Specific analysis

To present reliable rates and levels, a time frame should be used that can be considered as "finalised". The financial year 2011 cannot yet be used to calculate final rates as a large number of cases concerning the financial year 2011 will be reported in the coming years. Irregularities, fraudulent as well as non-fraudulent, are normally reported within a period of two and three years after a subsidy has been granted. This implies that also the financial years 2008-2010 cannot be considered as finalised. In addition, some cases are reported with some delay, which implies that cases concerning the financial year 2007 can also still be expected, therefore, the financial years 2007–2011 should be considered as still "on going".

The financial years 2004-2006 can be considered as finalised[47]. Member States had set up audit strategies and audit plans and performed audits on basis of these strategies and plans. Audit findings have become definitive and irregularities have been reported. In addition, the 50/50 mechanism was applied by the financial clearance decision for the financial year 2010 on all pending non-recovered cases dating from 2006 or 2002 (cases that were four or eight years old respectively)[48].

Chart NR12: course of cases of irregularities

The course of the number of cases of irregularities reported, non-fraudulent as well as fraudulent, concerning the expenditures of the financial years 2004-2006 enforces the assumption that all or almost all cases have been reported for the financial years 2004-2006. Chart NR12 demonstrates the course of the reported cases for the expenditures of the financial years 2004-2006. The thick blue line indicates the course of the reported cases of irregularities not reported as fraudulent concerning the financial years 2004-2006. In 2006, Member States reported 1 513 cases of irregularities concerning the expenditures of the financial years 2004–2006. The smooth light blue line is a trendline that indicates a downfall to zero in 2013. In other words, some cases can still be expected but the expectation is that these cases will not have a huge impact on the overall figures.

The red line indicates the number irregularities reported as fraudulent. The course of the red line follows the same pattern as the blue line (non-fraudulent cases of irregularities), only a bit later in time. The latter is caused by the fact that cases of irregularities reported as fraudulent are, in general, reported slightly later than other cases of irregularities. Apparently, Member States devote more care on cases of irregularities reported as fraudulent. Also for this type of cases counts that it can be expected that no more cases or almost no more cases will be reported for the financial years 2004-2006.

4.4.1. Financial Years 2004-2006: cases of irregularities reported as fraudulent

This paragraph will focus on the fraud rates for the financial years 2004-2006. The rates will be provided per Member State and per financial year. To avoid an overload of information, tables with detailed information on expenditure, cases of irregularities reported as non-fraudulent, cases of irregularities reported as fraudulent and the irregularity and fraud rates per Member State and per financial year are provided in annexes 19-22 and served as basis for the analysis hereunder.

Table NR 13 provides per Member State an overview of the expenditures for the financial years 2004–2006, number of beneficiaries and the cases of irregularities reported as fraudulent. Member States are ranked on basis of their expenditure. France had the highest expenditure, thus, on top of the table.

Table NR13: number of beneficiaries and number of fraudulent cases

The total expenditure for the financial years 2004-2006 was almost EUR 141 billion. The total amount affected by irreguluarities was more than EUR 253 million which implies an Irregularity Rate (IrR) of 0.18%.

Member States classified 642 cases (=165+267+210) as fraudulent out a total of 6,079 cases of irregularities concerning the expenditures of the financial years 2004-2006, which implies a Fraud Frequency Level (FFL) of 10.20%.

The total amount affected by fraudulent cases is almost EUR 60 million, which implies a Fraud Rate (FrR) of 0.04% and a Fraud Amount Level (FAL) of 22.35%.

The 642 cases of irregularities reported as fraudulent were reported by 16 Member States which implies that no suspicion of fraud occurred in 9 Member States. In other words, for 9 Member States counts that none of the irregularities was committed intentionally.

Striking are the sometimes huge differences between Member States. Italy and Poland had respectively 285 and 265 cases of irregularities reported as fraudulent while the top three spenders (France, Spain and Germany) together reported 36 cases.

In general counts that the number of cases of irregularities reported as fraudulent is low, in total as well as per Member State, especially when it is brought in relation with the number of beneficiaries. France granted in the period 2004-2006 subsidies to respectively 638 664, 583 600 and 547 548 beneficiaries.

France reported for the financial year 2004, on a total number of 638 664 beneficiaries, one case of suspected fraud, which implies a Fraud Frequency Level – Beneficiaries (FFL-B) of 0.0002%. The FFL-B is for the financial years 2005 and 2006 respectively 0.0009% and 0.0018%. These levels are soo low that it could be considered as negligible. The latter does not only count for France but for all Member States.

In a positive approach this would mean that beneficiaries comply for almost 100% with the conditions set by the regulations and that there are almost no beneficiaries that commit fraud or, to say it in other words, that there are almost no beneficiaries that are aware or should be aware of the fact that they commit irregularities.

In order to be complete, table NR 14 provides an overview of the EU-25 rates and levels per year for the period 2004-2006. The last column contains the average for the whole period.

Table NR14: rates and levels[49]

The irregularity rate (IrR), fraud rate (FrR) and fraud amount level (FAL) are decreasing in the period 2004-2006. However, the fraud frequency level (FFL) is increasing. The latter is logic now the total number of cases of irregularities reported decreased and the cases of irregularities reported as fraudulent increased.

4.5. Conclusions

(1) Approximately 44% of the EU-budget was spent in the agricultural sector, of which EAGF and EAFRD account for respectively EUR 43.3 billon and EUR 12.2 billion.

(2) IMS Module 1848 is used by all Member States and the number of users increased from approximately 50 in 2008 to more than 1 000 in 2011.

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

4.5.1. Reporting Year 2011

(4) The EU-27-compliance-rate-2011 increased from 90% to 93%. Finland and Poland improved the compliance rate for thereporting of personal data to respectively 67% and 58%.Timely reporting is still a problem for a large number of Member States.

(5) Member States reported 2 395 new cases with a total amount affected of about EUR 178 million. These cases concern expenditures for the years 1995-2011. Italy reported the highest number of cases (590) as France reported the highest amounts affected (EUR 72 million). 6 cases had a total amount affected of more than EUR 1 million. Luxembourg had no cases of irregularities to report.

(6) Member States reported 139 out of 2 395 cases as fraudulent, which is 6% of the total number of reported cases and 43% of the total amounts affected. These cases are mainly reported by Italy and young Member States as Bulgaria, Poland and Romenia. 6 Member States did not report any of their cases as fraudulent.

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

(8) Member States recovered during the year 2011 about EUR 173 million and declared irrecoverable about EUR 49 million. The overall outstanding amount at the end of Year 2011 is about EUR 1.2 billion.

(9) The new clearance mechanism (50/50 rule) provides a strong incentive for Member States to recover undue payments from the beneficiaries as quickly as possible. As a result, by the end of year 2010, 44% of the new EAGF debts from 2007 and thereafter had already been recovered, which is a significant improvement compared to the past.

4.5.2. Reporting Years 2004-2011

(10) The figures concerning the years 2004-2011 can be used to identify trends. These figures should be considered as half-time-result now still cases of irregularities will be reported for the years 2007-2011 and, to a smaller extent for the years 2004-2006. Definitive figures can only be determined of years that can be considered, from an irregularity reporting point of view, as "finalised".

(11) The total expenditure for the years 2004-2011 was about EUR 396 billion. The highest expenditure was made by France (20%) and the lowest by Malta (< 0.1%). Member States reported for these years 17,758 cases of irregularities with a total amount affected of about EUR 918 million which implies a provisional irregularity rate of 0.23%.

(12) Cases of irregularities reported as fraudulent are not equally spread over and within the 27 Member States. Poland and Italy are together responsible for almost 50% of the total number of these cases. Germany has with 20 cases a rather low number.

(13) Sectors for which most cases of irregularities reported as fraudulent were notified are: rural development, decoupled direct aids and other direct aids. Most frequently used Modus Operandi is "overdeclaration of land".

(14) Member States interpret the term "fraud" diffently.

4.5.3. Financial Years 2004-2006

(15) The years 2004-2006 can be considered as finalised now audit plans have been executed, recovery procedures have been started and irregularities have been reported.

(16) The total expenditure for the years 2004-2006 was about EUR 141 billion. Member States reported in total 6,079 cases with a total amount affected of about EUR 279 million, which implies an EU-25 irregularity rate of 0.18%.

(17) Member States classified 642 of the 6,079 cases as fraudulent. 550 cases (86%) were reported by 2 Member States: Italy and Poland. The other 92 cases were reported by 14 Member States. 9 Member States did not classify any of their cases as suspected-fraud or established.

(18) The irregularity and fraud rates are very low.

(19) The number of beneficiaries that committed fraud is very low, almost negligible.

4.6. Fisheries (Annex 23)

Council Regulation (EC) No 1198/2006 establishes the European Fisheries Fund (EFF) and defines the framework for EU support for the sustainable development of the fisheries sector, fisheries areas and inland fishing.

The European Fisheries Fund (EFF) shall contribute to realising the Common Fisheries Policy (CFP) objectives, which specifically consist of ensuring the conservation and sustainable use of marine resources. In order to achieve this, the Fund shall provide financial support aimed at:

· ensure the long-term future of fishing activities and the sustainable use of fishery resources;

· reduce pressure on stocks by matching EU fleet capacity to available;

· promote the sustainable development of inland fishing;

· help boost economically viable enterprises in the fisheries sector and make operating structures more competitive;

· foster the protection of the environment and the conservation of marine resources;

· encourage sustainable development and improve the quality of life in areas with an active fishing industry;

· promote equality between women and men active in the fisheries sector.

The EFF provides for five priorities: measures to adapt the EU fishing fleet, aquaculture, inland fishing, processing and marketing, collective action, sustainable development of fishing areas and technical assistance.

4.6.1. Financial framework

The EFF has a budget of €4 304 million for the period 2007-13. Over that period the Commission proposes to allocate on average €615 million per year to the Member States who have decided to benefit from EFF aid (all the Member States except for Luxembourg).

The amounts are divided between the Member States according to the size of their fisheries sector, the number of people working in the sector, the adjustments considered necessary for the fishing industry and continuity of the measures in hand.

Except for certain expenditure incurred by the Commission that is 100% covered by the EFF, the maximum contribution of the EFF is always calculated as a proportion of the total sum of all public expenditure. It varies according to the priority of the initiative and will be higher for the regions and Member States covered by the new "convergence" objective under the Structural Funds. The intensity of public aid authorised for each operation financed also varies according to the same parameters.

The Regulation sets the rules governing eligibility of expenditure, financial management, financial corrections, budgetary appropriations and reimbursement. It establishes a Committee of the European Fisheries Fund to assist the Commission in managing the EFF.

4.6.2. Management, monitoring and control

Each Member State must appoint the following bodies before requests for payment can be submitted:

· a managing authority for the programme to select and monitor initiatives to be financed;

· a certification authority to verify that expenditure complies with EU rules;

· an audit authority to verify the proper functioning of the managing and certification authorities;

· a monitoring committee, which a representative of the Commission participates in for advisory purposes and which assesses progress in reaching the objectives of the operational programme.

4.6.3. Irregularities affecting the EFF reported in 2011

Chapter VIII of Commission Regulation (EC) No 498/2007 of 26 March 2007[50] lays down detailed rules for the implementation of Regulation (EC) No 1198/2006 contains the relevant provisions for the reporting of irregularities to the Commission, establishing a set of rules that are very similar to those foreseen for the Structural Funds.

In 2011 Member States reported 48 irregularities, of which 2 were reported as fraudulent. These two cases were reported by Germany and Poland for a total financial volume of about EUR 30 000.

The violations linked to these two cases were categorised as ‘False or falsified supporting documents’ and ‘Expenditure not legitimate’.

The remaining 46 irregularities not reported as fraudulent involve EUR 1.6 million. Spain has reported the largest share of these irregularities (23, for EUR 1.2 million involved), followed by Poland (19 for about EUR 300 000 involved).

The most frequent type of reported irregularity was ‘Absence of declaration’ followed by ‘Not eligible expenditure’.

Annex 23 provides a complete overview by Member State.

5. COHESION FOR GROWTH AND EMPLOYMENT (Annexes 24-28)

5.1. Introduction

Since 1986, the objective of cohesion policy has been to strengthen economic and social cohesion. The Lisbon Treaty and the EU's new high-level strategy (Europe 2020) introduce a third dimension: territorial cohesion.

This topic has been under discussion since the early 1990's, and with each new country that joins the EU, the need to pay attention to the evolution of the European territory becomes more acute.

The programmes financed under the policy for cohesion for growth and employment (Cohesion Policy) are implemented during several years known as programming periods.

For the current programming period 2007-2013, the cohesion policy focuses on three main objectives:

· Convergence – solidarity among regions: its aim is to [51]

· Regional Competitiveness and Employment: its [52]

· European territorial cooperation (ETC): its aim is to encourage cooperation across borders - be it between countries or regions – that would not happen without help from the cohesion policy. In financial terms, the sums concerned are negligible in comparison with the other two objectives, but many countries and regions would like to see that change in future. All regions are concerned.[53]

Three funds support the activities financed under the Cohesion Policy. Chart SF1 shows which fund supports which objective.

Chart SF1: Objective, Structural Funds and instruments 2007-2013

5.2. Irregularities reporting

The legal provisions setting the reporting obligation for the Cohesion Policy are contained in three different regulations. Regulation (EC) No 1681/94 which covers the four Structural Funds[54] for all programming periods until 2000-2006 included; Regulation (EC) No 1831/94 on the Cohesion Fund, with the exception of the period 2007-2013); and Regulation No 1828/2006, which covers the programming period 2007-2013. Annexes 25 to 28 provide details about the irregularities reported under the different regulations.

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

In the following paragraphs, when referring to irregularities reported in 2011, it should be kept in mind that, conformly to the reporting obligations, Member States shall notify irregularities within two months folliwing the end of each quarter. Therefore the “reporting period” goes, in fact, from 1st March 2011 until 29 February 2012.

5.3. Reporting Discipline

Thanks to the introduction of IMS, the timeliness, quality and completeness of reported information is satisfactory in general. Only France has not entirely completed its preparations (but started reporting through IMS nonetheless), but it is expected to do so in the course of 2012.

Minor inconsistencies are still noticed in the classification of the irregularities, as it still happens that an irregularity, whose described modus operandi is ‘false or falsified supporting documents’ is not classified as ‘suspected fraud’ as it would be expected. However, these these inconsistencies involve less than 1% (29 on 3 880) of the reported irregularities.

Lastly, still a significant number of irregularities (about 38%), lacks the indication of the period in which the irregularity took place, while for the date of establishment of the irregularity important improvements have been made (less than 4% missing). Therefore all Member States are requested to pay more attention to the reporting of the period in which the irregularities took place.

5.4. General trends

Annex 24 shows the overall trend of the reported irregularities by year. In 2011 the number of notified irregularities (both reported as fraudulent or not) and the related financial amounts involved decreased in relation to 2010, by 45% and 21% rispectively.

The main reasons for this significant decrease are linked, in particular, to the “neutralisation” of the “acceleration” to the reporting of irregularities following the introduction of the IMS; to a general improvement in the management and control sytems; and to the cyclical effect of the closure of the programming period 2000-2006 (with increased control activities in the latest years of its implementation) and the consequent contraction as the programmnig cycle 2007-2013 is implemented in a progressive way.

Accordingly to these decreases, also the impact on the overall resources allocated to the Cohesion Policy in the 2011 budget has been decreasing from 3.15% to 2.43%.

However, it should be kept in mind that reported irregularities refer to programmes and projects that are of a multi-annual nature and they refer to four different programming periods. Furthermore, the budget for the year 2011, on which the impact of irregularities reported by the Member States has been calculated, is indicating the resources allocated to the fifth year of the programming period 2007-2013, while only a part of the reported irregularities is referred to it.

This implies that a correct estimation of the impact of irregularities (fraudulent and non-fraudulent) on the part of the European budget dedicated to the Cohesion policy is possible only through an analysis by programming period. Paragraph 5.5 deals with these types of analysis.

Similarly to previous years, also in 2011 the ERDF and the programmes related to the objective ‘Convergence (ex-objective 1 for the period 2000-2006) show the highest number of irregularities and related irregular amounts.

For the first time, irregularities related to the programming period 2007-2013 have been the most numerous, as showed in Table SF 1. Irregularities concerning the older programming periods are still notified, including four reported as fraudulent[55]

Table SF1: irregularities reported in 2011and irregularities reported as fraudulent by programming period

The countries having reported the highest number of irregularities in 2011 were the Poland, Spain, Italy, Portugal, United Kingdom, Greece and the Czech Republic (all having reported more than 275 irregularities). The highest irregular amounts were reported by the Greece, Italy, Czech Republic, and Poland (all above EUR 100 million). Annexes 25, 26, and 28 detail the number of irregularities and related amounts reported by Member State under the different programming periods and funds.

Table SF1 also shows the Fraud Frequency Level (FFL) and the Fraud Amount Level (FAL), that is to say the percentage of the notified irregularities and of their related amounts which have been reported as fraudulent. These shares are quite stable across the years and show average values of 9.2% for the FFL and 13.3% for the FAL for the period 2001-2011[56].

On the basis of this estimation, the FrR[57] of the Cohesion Policy is 0.46% of the 2011 budget for this policy area, with a significant decrease in relation to 2010, when it was 0.74%.

However, this projection on the EU budget does not imply that these amounts turn out into a loss. In fact, as indicated in Table SF2, 13% of the financial amounts involved have been prevented from being unduly spent and, furthermore, those which were spent are referred to behaviours potentially fraudulent which have been detected by national authorities and for which recovery procedures are ongoing.

5.5. Irregularities reported as fraudulent

In 2011 276 irregularities were reported as fraudulent by Member States[58]. Reported cases still refer to several programmin