SUMMARY

In the 2011 Report on the protection of the European Union's financial interests, the Commission made certain recommendations to the Member States. The Commission has followed up the implementation of these recommendations by the Member States as part of the 2012 reporting exercise.

1. CASES REPORTED AS FRAUDULENT

1.1. Expenditure

Shared management (Agricultural and cohesion policy expenditure)

In 2011, in the agriculture domain, Bulgaria reported the highest number of fraudulent irregularities in this area, with 37 cases followed by Romania with 25. Certain big-spending Member States such as France, Germany, Spain and the United Kingdom continue to report a very low number of irregularities as fraudulent. This raises the question whether the low number declared as fraudulent is due to non-compliance with reporting principles, including their interpretation of the terms ‘suspected fraud’ and ‘established fraud’, or to the ability of the control systems in place in these Member States to detect fraud.

In 2011, in cohesion policy domain, trends highlighted in previous years were confirmed: Poland, Germany and Italy reported most of the cases and Germany remains the most successful Member State at completing criminal proceedings to establish fraud and impose penalties. Six Member States reported no irregularity as fraudulent in the area of cohesion policy in 2011: Belgium, Cyprus, Denmark, France, Malta and the Netherlands. It is still not clear why this was so in larger Member States, like France.

The Commission invited Member States to explain the low number of “suspected fraud” cases reported in the agriculture and cohesion policy areas, and to report on the way in which their control systems target high-risk areas to improve fraud prevention and detection.

In the area of shared management, it a fact that several Member States continue to report extremely low levels of suspected fraud in either agriculture or cohesion policy leading to continued concern about their fraud detection systems, although most contend that this can be attributed to the quality of their fraud prevention and low actual levels of fraud.

Agriculture and Rural development Spain replied that they consider most irregularities are unintentional, due the complexity of the sector. However the Spanish authorities consider that they devote considerable resources to detecting suspected fraud and argue that the frequency and carefulness of the checks that they undertake guarantee that fraud and irregularities will be detected. France reiterated many of the arguments made last year to defend the low levels of fraud they detected in Agriculture, namely that their ex-ante checks are very strong and that there is no relationship between the amounts of aid received and the level of fraud. France does not consider definitional differences are a factor as their definition of fraud is consistent with the EU definition.[1] Germany stated that its management and control system is efficient and that all cases detected are reported. The UK responded that the low number of cases of fraud reflects the high standard of checks which they carry out and consequent low levels of fraud[2].

Cohesion policy: Cyprus and Malta considered that their strong multi-layered system of prepayment checks should detect most irregularities. Cyprus replied that their definition of suspected fraud is based on the EU's definition and considers that the distinction made in the last year's report on fraudulent and non-fraudulent irregularities is more restrictive that the definition of 'suspected fraud'. Nevertheless, Cyprus declared that the prescribed procedures are followed and those cases that fall within the definition of 'suspected fraud' are reported accordingly Denmark replied that all suspected fraud cases in the area of cohesion policy are investigated, so they do not make a cost benefit analysis, this suggests that they are not targeting checks on the basis of risk analysis until suspicions emerge. Belgium reported increased checks in the Brussels Capital Region and that an EU systems audit's findings were satisfactory in the German speaking region. However the questionnaire response only referred to the ESF and did not include responses from the administrations of the two most populace administrative areas.

Malta's response was also to attribute the low levels of fraud to prepayment checks which are carried out by the Treasury as well as the line ministry on invoices and public tenders to ensure errors are detected early. In addition desk checks and on site document checks are carried out on 100% of invoices received. The Netherlands also emphasise their pre-payment checks, implicitly as a reason for low levels of fraud, these checks focus more on face to face meetings with the beneficiaries.

Many countries outlined how they target their fraud prevention and detection efforts on the basis of risk analysis.[3] In the area of cohesion policy United Kingdom and Cyprus targeted vulnerabilities to irregularities in general rather than specifically focussing on fraudulent irregularities. Slovakian authorities sought to improve their risk analysis with new obligations for managing authorities to take account of media reports and complaints from the public.

Various Member States outlined measures to target the vulnerabilities which were identified. Romania is now piloting a system of ex-post checks to look for fraud and conflicts of interest. In 2012, Bulgaria updated the Law on State Financial Inspection. The amendments mandated new financial inspections by the Public Financial Inspection Agency on the awarding and implementation of public procurement contracts especially in areas highlighted by risk analysis. In 2012 the Bulgaria Public financial inspection Agency discovered 36 infringements and frauds in public procurement.

1.2 Pre-accession funds

In the case of the Instrument for Pre-Accession Assistance (programming period 2007-2013), the nine irregularities reported as fraudulent were divided between the five different components. Irregularities in all five were reported by Turkey, while a single case concerning the cross-border component was detected in Italy, part of the Adriatic Cross-Border Cooperation Programme. In this area, only Turkey is using IMS for the reporting of irregularities, while Croatia still does not, despite the training and support provided.

The Commission invites Croatia to complete the implementation of the IMS and to improve the reporting quality; the Commission invites FYROM to implement the system.

In the pre-accession area Croatia reported that they have completed the implementation of the IMS in October 2012.

2. CASES NOT REPORTED AS FRAUDULENT

2.1 Revenues -Traditional own resources (TOR)

In recent years the Commission has laid special emphasis on Member States' customs control strategies in its TOR inspections. The Commission is closely monitoring Member States' action in response to the observations made during Commission inspections. In 2011, in the area of traditional own resources (TOR), both the number of cases of irregularities reported in OWNRES as fraudulent and the amounts involved were lower than in 2010.

The Commission recommended that Member States' customs control strategies should intensify targeting high-risk imports, thus further improving the detection rate of cases of irregularities and fraud in TOR.

The majority of Member States' stated that their customs authorities use risk analysis to target their endeavours.[4] Others either did not reply or did not comment.[5] Luxembourg responded that the question was not applicable. The general nature of some replies made further assessment difficult and represents a missed opportunity to share experience.

Belgium, Ireland, France, Italy, Hungary and Sweden have all improved their IT capabilities either through new systems or adding new features to existing programmes. IT improvements were sometimes made in order to manage high risk imports which have already been identified for example Belgium added specific categories, for automatic declaration of agricultural products. France added an automated element in its customs declaration procedure for determining whether or not the release of goods needs to be delayed pending checks. By processing information according to existing analysis this ensures high risk goods are checked and allocates random sampling of medium risk goods, whilst speeding up the procedure for low risk goods, such as those on which no duties apply. Finland have a similar system as does Hungary, however the latter mentioned that staff have the discretion to carry out checks even if the system does not detect risk. Ireland introduced a new IT tool the Customs Risk Intervention Selection Programme (CRISP) which will select high risk non-compliant imports for post-clearance primary audits. Sweden is developing new risk management systems.

Organisational or procedural measures were also introduced. Hungary carry out a small number of completely random audits on the basis of an ECA recommendation that there should be a possibility that all entities will be checked. Hungary's annual ex-post audit plan aims to cover an estimated 90% of high risk entities, 5% of medium and small risk operators and 5% completely randomly (although Authorised Economic Operators are exempted). Presumably the 5% of completely random checks are also useful to evaluate how effective the risk analysis targeting has been.

Some Member States took measures to increase their staff's capacity or increase the guidance provided to them in order to better target risky imports. Estonia reorganised its staffing structure to allow personnel to specialise more on one of the following issues, customs classification of goods, customs value of goods and origin of goods. Hungarian authorities have made a risk analysis data sheet for carrying out audits on those operators permitted simplified transit procedures; they intend to make its use compulsory for all customs authorities. Check lists for when these audits are carried out have also been designed.

Member States often have different approaches to risk targeting. France emphasised specific economic operators and separately goods. Greece focused attention on geographical risk, especially goods movements via Bulgaria, as the removal of border customs offices since Bulgaria's accession heightened risk. Italian customs authorities reported success in recovering considerable amounts of TOR by targeting under invoicing during import value declarations.

Hungary stated that EU and national level efforts to simplify and speed up customs procedures, lead to increased reliance on ex-post checks. Generally document and systems audits on the operator rather than checks on the goods movements. France and Hungary mention procedures for auditing trusted operators who have been granted simplified procedures.

Romania reported that the measures taken by the authorities have resulted in an increase in the number of cases of fraud/irregularities detected exceeding EUR 10,000.

Bulgaria, Hungary, the Netherlands and Slovakia considered products which were subject to anti-dumping duty merited closer scrutiny, as these tariffs are relatively high increasing the incentive to avoid them. The Netherlands is taking part in a pilot of the European Commission ConTraffic project to address this. Hungary considered textiles, clothing, shoes and other footwear were vulnerable and so increased ex post checks on these products, Bulgaria targeted cigarettes.

Some Member States[6] stated that increased compliance was an important aim. Bulgaria considered that this increased compliance led to a drop in detection and Netherlands predict the same effect. Sweden considers that many errors are unintentional and so have launched a guidance programme to help operators comply. Denmark considers that slow world trade might account for the decrease in irregularities and fraud reported by some MS although they detected an increase in 2011. Germany also increased detection in 2011.

Several Member State mentioned the importance of information exchange with other Member States and third countries to help identifying imports for which fraud or irregularities are likely. Finland also mentioned that they make use of the EU community risk management system and EU common priority control areas database. Cyprus mentioned the usefulness of information received from OLAF and TAXUD and via information exchange with Member States and third countries in making their risks analysis. Bulgaria also stated that information from the EU's Customs Risk Management System (CRMS-RIF) and intelligence received via AFIS were useful. Germany considers that if all Member States bring their customs controls up to the standards of the highest performers, the overall level of detected fraud at EU level would rise considerably.

2.2 Cohesion policy

Irregularities not reported as fraudulent in cohesion policy still account for the largest share of those affecting the various areas of expenditure under the EU budget, though the prevalence of this sector is decreasing in relation to the previous year (approximately 50 % of all cases reported in 2011, in comparison with 70% in 2010).

The majority of these irregularities are infringements of rules applicable to public procurement and eligibility of expenditure. This shows that management and control systems can still improve in this area.

The Commission encouraged Member States to pursue their efforts to improve the efficiency and effectiveness of their management and control systems in the area of cohesion policy.

In the area of cohesion policy, the Commission invites France to finalise implementation of the IMS system by the end of 2012.

Most Member States reported that they have improved their management and control systems for Cohesion policy.[7] Generally Member States have paid special attention to the areas of public procurement and eligibility in accordance with the Commission's observations that these areas were particularly error prone.[8]

Bulgaria described putting in place procedures for managing authorities to take to ensure adequate management and control of public procurement. These include sending experts to observe project evaluation committees and making examinations of all stages of a particular public procurement procedure. Poland cited the complexity of procurement rules as a key reason, Estonia and the United Kingdom called for simplified EU procurement rules. Finland however introduced measures to simplify eligibility checks.

Various Member States[9] reported on legislative measures taken. For example Lithuania amended relevant legislation to protect the EU's financial interests and improve recoveries. Bulgaria changed the law on preliminary controls by the Procurement Agency so that it now looks at calls to tender before their publication, makes recommendations and then produces a report for all authorities concerned which considers the extent to which the recommendations were complied with once the tender was published. The procurement authority in Cyprus carry out checks on all procurement processes co-funded by the EC including controls before the call for tenders is launched.

To prevent irregularities and improve financial oversight Lithuania, Poland and Romania, clarified or amended the division of responsibilities between the different agencies and administrative services[10]. Many countries issued new rules, procedures and guidelines often around the areas of procurement and eligibility[11]. Lithuania made new guidelines on amongst other things on calculating financial corrections, tackling systematic irregularities and reopening investigations when new facts come to light. Hungary is elaborating a new anti-fraud strategy for Cohesion policy; this will also address fraud and irregularity prevention and will be sent to the Commission for approval.

Training measures for staff involved in managing funds and overseeing compliance were also cited as important by Bulgaria, Germany, Estonia, Lithuania Portugal and Italy. Italy considers systems to detect fraud, must be complimented with effective means of preventing fraud and irregularities happening in the first place. Therefore through the Hercule II programme, Italy exchanged best practices with Italian authorities and other Member States including via training sessions and a guide book.

Ex-ante checks were cited as an effective way of preventing irregularities from occurring by Cyprus, Latvia and Poland. Hungary found that quality control reports on tender documents by the Public Procurement Supervision Department (KFF). at the initial stage allowed beneficiaries who initially might have submitted ineligible documents to provide sufficient information to eventually secure approval, equally irregularity procedures could be started if recommendations were ignored. Systems audits were used to test the strength of management and control systems and recommend improvements in several Member States.[12] In Bulgaria systems audits cover preventative measures, corrective action and reporting of irregularities. Bulgaria also cited the role of their certifying authority preventing irregular expenditure from being submitted to the Commission. The Certifying authority provides broader oversight over managing authorities and operational programmes assessing their systems and carrying out additional checks on programmes where audit reports have detected problems, as well as on the basis on sampling. Denmark works with an external auditor to check projects as well as the accounts covering all Regional Fund and ESF spending. Ireland reported that before expenditure is submitted to the Commission it must pass a series of checks. Ireland declared bearing any cost of funds which they discover were paid out in error.

Poland mentioned updating its inspections and approach to operational programmes according to the recommendations made by the Commission. Denmark, Greece and Hungary reported on sample based checks, used to ensure reasonable coverage . This can also help risk analysis remain responsive to emerging challenges. Various Member States cited using risk analysis to identify areas, processes or actions where systems are vulnerable and focus more checks on these areas. For instance Latvia reported on the development of a risk management system to establish where conflicts of interest, corruption or operations with high error rates are likely, in order to target particularly thorough auditing accordingly. Operations with an error rate of zero are also considered high risk under the Latvian system, as it is likely that systems and practice are insufficient at identifying irregularities. Slovenian authorities consider that in the previous programming period no fraud was because insufficient resources were dedicated to fraud prevention and protecting the EU financial interests, however they consider efforts to address this and international frauds, will probably lead to an increase in the fraudulent and non-fraudulent irregularities committed.

Some Member States explicitly such as Germany, Ireland and the Netherlands and consider their management and control systems do not need much improvement, others imply this through replies that are vague (Spain, Czech Republic) or non-existent (Austria, United Kingdom) to this recommendation.

Luxembourg and Latvia reported efforts to improve audit trails. Malta reports that managing authorities ask beneficiaries to explain their systems for controlling and monitoring expenditure, before agreeing systems for reconciliation at the beginning of the project, above and beyond those already foreseen in the contract. .

Finally, with regard to the specific recommendation addressed to France, they responded that they have completed the implementation of IMS for Cohesion Policy. Additionally, France reported deploying the management tool for automatic processing of goods seized. Altogether 70 allegations were sent via IMS in 2012 (45 for ERDF and 25 for the ESF).

3. RESULTS OF THE QUESTIONNAIRE ABOUT CONTROLS TO COMBAT IRREGULARITIES AND FRAUD AGAINST THE FINANCIAL INTERESTS OF THE EU IN THE AREA OF COHESION POLICY

The Member States’ responses to the questionnaire show that further progress is needed on monitoring the results of the administrative and criminal anti-fraud investigations, including recovery of the amounts concerned.

It is also clear that better fraud statistics are necessary so that the Commission and the Member States can focus their efforts in higher-risk areas. In that respect, the Commission intends to put more emphasis in the reporting in this area.

The Commission invited Member States to monitor the results of criminal investigations and improve their fraud statistics.

Various Member States describe measures they are currently implementing in response to the recommendation[13]. In December 2011 the Greek Ministry of Justice set up a Working Group on reorganising and modernising the system for collecting and processing judicial statistics. The Working Group has issued recommendations which amongst other things propose the compilation of statistical data relating specifically to fraud affecting the EU budget. In addition, Greece and Hungary are undertaking substantial reforms in their anti-fraud mechanisms, which are expected to lead to overall improvements in monitoring and cooperation in the field of fighting fraud affecting EU funds as well as asset recovery. In Greece the SDOE[14] annual action plan includes improving the statistics on recovery and encouraging public bodies to pursue recoveries in the case of fraudulent or non-fraudulent irregularities.

Hungarian and Slovakian AFCOS and the Latvian managing authority and agricultural paying agency, have organised workshops and working groups for the judiciary to reinforce the communication and exchange of information between the institutions, in order to improve the monitoring of judicial investigations and recoveries. In Slovakia special attention has been paid to coordination between AFCOS, the courts and the managing authorities, this is important to ensure that the managing authority reacts to prosecutions in a timely manner by initiating recovery procedures.

Bulgaria, Latvia and the UK pay particular attention to collecting statistics and monitoring the results of criminal investigations in the agricultural sector. In April 2012, the UK's Rural Payment Agency has set up a system to monitor the results of criminal investigations. The Bulgaria Stated Agricultural fund also keeps detailed statistics on these matters which it communicates to OLAF.

Countries such as Italy, Lithuania, Greece and Hungary are currently developing relevant IT tools for collecting statistics on the results of criminal investigations and/or recoveries. Since 2011, these Member States reported that they put in place or began putting in place IT systems to improve their fraud statistics. For example, in June 2012 the Italian Ministry of Justice has issued a special measure reforming the judiciary's IT system to enable disaggregation of fraud cases involving EU funds from all other criminal proceedings. Similarly, an integrated information system on criminal procedure was set up in Lithuania in 2012 and is due to be launched by July 2013. It will incorporate key information relating to criminal procedure. Czech Republic and Luxembourg[15] stated that they were also working to improve their fraud statistics.

Germany, and Finland seemed satisfied with the systems they have in place for collecting statistics on fraud cases and their monitoring of criminal investigations.[16] Sweden also expressed this opinion but detailed the number of on-going and completed investigations. Belgium outlined relevant cases under investigation but did not respond further. Romania's AFCOS detailed their judicial statistics which show a 100% increase in indictments, as well as an increase in judicial decisions and a 300% increase in recoveries, demonstrating the importance of accurate monitoring in this area.

Other Member States described certain aspects of their practices in terms of monitoring the results or criminal investigations and collecting fraud statistics. Bulgaria outlined the work of the special units set up within the Prosecutor's office and Police since 2008, which are designed to monitor, co-ordinate and conduct the investigation of EU fraud. The Supreme Cassation Prosecution Offices meets with managers of operational programmes annually to ensure lessons are learnt from fraud cases; AFCOS is updated about cases, it then passes the information onto OLAF and managing authorities. Estonia noted that whilst no cases are closed until all procedures are completed, updates about cases are recorded in IMS. Poland reported promoting information sharing between law enforcement bodies and also that they share relevant information via IMS, as does Spain. In Spain the Directorate General for the Management of European Funds monitors the results of judicial investigations. In Cyprus the intermediate authority referred to monitoring the results of investigations and passing its findings onto AFCOS, however this year no fraud was detected in the area of Cohesion Policy. Portugal reports that the ESF managing authorities IGFSE is tasked with updating a database with all information on cases related to that fund.

Meanwhile Slovenian authorities agreed with the Commission's recommendation and outlined how their inter-ministerial working group on cooperation with OLAF was working to address the issue. Spain also declared that they work with OLAF missions on improvement of judicial statistics including by providing national staff to assist in the process. Hungary acknowledged the need to improve judicial statisitics so that they are readily available and correctely classified. Recalling that this had been noted by the Commission, OECD and Moneyval. Next year several steps will be taken to improve the relevent statisical databases.

The Netherlands reported that they did not detect any case of fraud. Ireland agreed with the recommendation but stated low levels of fraud detection meant their activity was not very intensive in this area. Denmark, France and Austria have not provided feedback on the recommendation.

Hungary is considering creating specific legislation to more appropriately reflect situations where EU funds under shared management are misused, currently there are occasions when the agency which funded a beneficiary is not recognised as an injured party. It is planned to address this matter as part of the Hungarian Anti-Fraud Strategy. Poland also reported problems for competent authorities to obtain some relevent information when they are not considered the injured party in a case.

ANNEX – REPLIES OF MEMBER STATES

1. REPORTED CASES AS FRAUDULENT

1.1. Expenditure

Shared management (Agricultural and cohesion policy expenditure)

In 2011, in agriculture domain, Bulgaria reported the highest number of fraudulent irregularities in this area, with 37 cases followed by Romania with 25. Certain big-spending Member States such as France, Germany, Spain and the United Kingdom continue to report a very low number of irregularities as fraudulent. This raises the question whether the low number declared as fraudulent is due to non-compliance with reporting principles, including their interpretation of the terms ‘suspected fraud’ and ‘established fraud’, or to the ability of the control systems in place in these Member States to detect fraud.

In 2011, in cohesion policy domain, trends highlighted in previous years were confirmed: Poland, Germany and Italy reported most of the cases and Germany remains the most successful Member State at completing criminal proceedings to establish fraud and impose penalties. Six Member States reported no irregularity as fraudulent in the area of cohesion policy in 2011: Belgium, Cyprus, Denmark, France, Malta and the Netherlands. It is still not clear why this was so in larger Member States, like France.

Recommendation 1

In agriculture and cohesion policy areas, Member States are invited to explain the low number of “suspected fraud” cases reported and to report on the way in which their control systems target high-risk areas to improve fraud prevention and detection.

.

BE || According to the ESF Operational Programme (OP) on regional competitiveness and employment in the Brussels-Capital region, risks linked to fraud cases have been considerably reduced because of the large number of checks carried out by the Managing Authority, the Certifying Authority and the Audit Authority. German-speaking Community: as regards following the recommendations made by the EC, we would point out that a systems audit was carried out by the European Commission, DG Employment, Social Affairs and Inclusion (I2), following which the functioning of the German-speaking Community’s management and control system was certified as good. Article 73(3) of Regulation (EC) No 1083/2006 is therefore applicable, which means that the Commission can rely principally on the opinion of the audit authority.

BG || Recommendation 1 (in the section on agriculture) concerns France, Germany, Spain and the United Kingdom and does not apply to Bulgaria. With regard to the section on agriculture, as can be seen from the Report from the Commission to the European Parliament and the Council, "Protection of the European Union's financial interests - Fight against fraud Annual Report 2011" (p. 9), Bulgaria reported the highest number of fraudulent irregularities in this policy area, with 37 cases, followed by Romania with 25. Therefore, we consider that the recommendation to provide explanations for the low number of "suspected fraud" cases reported in the area of agriculture does not apply to Bulgaria. With regard to the section on cohesion policy, it should be borne in mind that the systems include a considerable number of preventive control measures, which have led to a significant reduction in the error rate found in subsequent audits and inspections. The audits of the operations showed that for all Operational Programmes, the error rate is below two percent, which demonstrates the effectiveness of control procedures. The low error rate also implies a low number of reported irregularities. A high number of reports of "suspected frauds" is not to be expected, since these represent a proportion of the irregularities reported and if the overall number of such irregularities is low, the number of suspected frauds cannot be expected to be high. The first audits of operations showed that the main sources of errors are ongoing procurement procedures. In order to minimise the risks, a procedure for conducting preliminary controls has been introduced by the Agency for Public Procurement, and the Agency's capacity has been increased. This has led to a significant increase in the quality of procedures for selecting contractors and a decrease in the percentage of errors found in the implementation of the Operational Programmes. In addition, the management and control systems for the Operational Programmes provide for verification of all contracts and documents and on-the-spot inspections to monitor the actual implementation of contracts. Therefore, any irregularities can be identified at a sufficiently early stage and adverse effects avoided before the verification of the expenditure concerned. These results notwithstanding, Bulgaria is continuing to work actively to improve the management and control systems for Operational Programmes. In 2012, work began on the drafting of a Law on the management of European Union funds, which is due to be adopted in 2013. The law will be the basis for management and control systems over the next programming period and will improve the overall environment for the implementation of EU‑funded projects. Consequently, the European Commission's fourth recommendation on improving the effectiveness of the management and control systems has already been met. We should also like to highlight the findings of the 2011 OLAF report, which showed that in Bulgaria the large number of reported irregularities can be ascribed to the fact that the system is functioning well. The work of the Public Financial Inspection Agency (ADFI), which is part of the Republic of Bulgaria's public internal financial control system, can be given as a specific example of what Bulgaria has done in relation to national control systems. The Agency's goals, tasks and principles and the scope of its activities and functions are defined in the Law on State Financial Inspection (ZDFI), promulgated on 21.4.2006 and last amended on 18.5.2012, whose primary purpose is to protect the public financial interest. The Agency's various departments carry out follow-up inspections to assess the compliance of the budgets, financial-economic and accounting activities of organisations and persons, in accordance with Article 4 of the ZDFI and the award and implementation of public procurement contracts. They also establish infringements and indicators of fraud, uncover breaches, establish financial and administrative criminal liability and determine when fraud or other irregularities have occurred in order to protect the financial interests of the European Union. The ADFI is also responsible for assisting the European Commission's controllers in carrying out on-the-spot checks or inspections, in cases where the organisations or individuals concerned have not agreed voluntarily to provide access to the premises and/or documents to be inspected, in accordance with Council Regulation (Euratom, EC) No 2185/96 of 11 November 1996. In 2011, the National Assembly adopted amendments to the Law on State Financial Inspection in the Amendment of 5.8.2011, in response to the findings and recommendations set out in the European Commission's fourth annual report of July 2010 on Progress in Bulgaria under the Cooperation and Verification Mechanism. In connection with the weaknesses identified in the control of public procurement procedures, the report recommended that continuous risk assessment should be performed, that control activities should be targeted accordingly in a pro-active and result-oriented manner, and that the capacity of the ADFI should be strengthened. Measures for implementing these recommendations were included in two consecutive schedules for urgent measures and actions for the government and the judiciary, to meet the benchmarks set for progress in the areas of reform of the judiciary, the fight against corruption and the fight against organised crime for the periods of August-December 2010 and March-July 2011. These changes to the Law on State Financial Inspection (ZDFI) introduce a new remit to conduct financial inspections of the award and execution of public contracts, based on the approved annual plan, whose implementation is mandatory. The frequency of inspections and the specific contracting authorities subject to supervision in the course of the year are based on analysis of information on procurement activities, the assessment of risk factors and the Agency's capacity. The planning approach aims to prevent and reduce the risk of uncontrolled expenditure of public finances, to exert a disciplining effect on contracting authorities and to give the ADFI recourse in law to control and target high-risk contracting authorities. This approach has been applied since the beginning of the 2012 accounting year. In 2012, the ADFI conducted 39 financial inspections of beneficiaries of funding from EU funds and programmes and established and registered 41 cases of violations and fraud in the expenditure of these funds. In 36 of the inspections, the violations concerned the award and execution of public contracts, the Public Procurement Law (ZOP), the Implementing Rules for the Public Procurement Law and the Ordinance on Small Public Procurement Contracts and, in three of the inspections, the violations concerned the Decree of the Council of Ministers of 12.3.2007 on the terms and conditions for selection of contractors by beneficiaries of grants agreed from the Structural Funds and the Cohesion Fund of the European Union, the "Black Sea Basin 2007–2013" Joint Operational Programme, the EEA Financial mechanism and the Norwegian Financial Mechanism. Of the 41 cases of violations and fraud in the expenditure of European funds that were established, 13 cases related to the Rural Development Programme, 12 to the "Regional Development" Operational Programme, 4 to the "Administrative Capacity" Operational Programme, 4 to the PHARE Programme, 2 to the "Environment" Operational Programme, 2 to the cross-border co-operation programme between Romania and Bulgaria for the period 2007-2013, 1 to the Human Resources Development Operational Programme, 1 to the Investment Fund of the Ministry of Labour and Social Policy and 1 to the EEA Financial Mechanism. These violations resulted in 127 acts establishing administrative violations. In accordance with Article 19 of the Law on State Financial Inspection (ZDFI) 18 reports on completed financial inspections were sent to the Public Prosecutor. In accordance with Article 20(6) of the same law, the results of all 39 inspections were reported to the funding bodies. All the cases of violations and fraud in the expenditure of EU funds established by the agency were reported promptly to the "Coordination of the fight against infringements affecting the financial interests of the EU" (AFCOS) Directorate in the Ministry for the Interior, in accordance with the 2012 Action Plan for the implementation of the National Strategy on the prevention and fight against fraud and irregularities affecting the financial interests of the EU.

CZ || The Czech Republic in 2012 reported nine cases classified as “suspected fraud”. This is two cases fewer than in 2011.

DK || Agriculture policy Denmark will begin work on identifying further key risks of fraud involving EU funds and on assessing how suspected fraud is evaluated and reported. We would also point out that, in 2012, Denmark accounted for a significant proportion of the total reported cases of suspected fraud. Cohesion policy Denmark considers its financial control to be adequate since all projects where there is suspected fraud are examined and reported. No cost-benefit analyses are therefore carried out in connection with fraud investigations.

DE || Germany reported the cases detected by its efficient management and control systems.

EE || Agriculture. Estonian authorities reported 15 EAFG and EAFRD irregularity cases the financial impact of which exeeded more than 10 000 euros in 2011. The total amount of these cases was 105 974 euros. Two out of fifteen irregularities were established as suspicion of fraud, which is 13% of all irregularity cases. Cohesion Policy Estonia reported one fraud case in 2011 amounting to 276 192 euros and this case had a court decision (guilty) in 2012. We reported six suspected fraud cases in 2012 totalling 888 558 euros, none has a solution yet. Estonia has good cooperation with the investigative authorities (the Police and prosecutors): we share information and specific knowledge. We had four different training courses in 2012: two for the Police staff (120 officials) explaining the Cohesion Policy rules given by AFCOS and two for the implementers (70 officials) explaining how to interview, presented by the Police detective. The control system of the Estonian authorities is efficient and the number of suspected frauds detected as a result of administrative proceedings is higher than the European average. The control system will be enhanced taking into account the business environment and the authorities’ feedback on the implementation of the support schemes.

IE || Cohesion policy The low fraud rate in Ireland is explained by the types of beneficiaries involved in both ESF and ERDF programmes. Only expenditure incurred by public beneficiary bodies operational in the Irish administrative system is declared for EU drawdown purposes. Consequently any potential risk to the EU budget is absorbed by the Irish Exchequer prior to expenditure being declared. Furthermore the Structural Fund implementing bodies in Ireland adopt a zero tolerance to fraud. In light of this approach the Commission Guidance Note ‘Information Note on Fraud Indicators’ (COCOF 09/0003/00) has been issued to all bodies in the Structural Funds cascade. The Irish Managing Authorities also ensure that management verifications are adequate to deter or detect fraud. Audit Authorities build in checks for common frauds into their audit programme based on the COCOF guide. Procedures are included in checklists on areas susceptible to fraud such as payroll, income and public procurement. Physical checks are also carried out on supplies during on-the-spot operations audits. Audit Authority staff are also advised to maintain an attitude of professional scepticism throughout the audit. Agriculture Up to now, Regulation 1828 only required the reporting of cases where the amount of the irregularity was €10,000 or greater. As the majority of SFP and REPS cases are less than this amount, it follows that any resulting irregularity from any one payment would be less again. In addition, the requirement applies to amounts that would prejudice the Community budget. For EU co-funded schemes such as REPS this further dilutes the population of potential fraud cases. For those cases where the threshold has actually been exceeded, Ireland’s position has always been that there is no automatic presumption of fraud. The existence of an irregularity, of any amount, is not deemed to be fraud until such a finding has been determined in a court of law. The number of irregularity cases where this has actually occurred is very low.

EL || Ministry of Finance – State General Accounts Office – Fiscal Control Committee (EDEL) EDEL, as the control authority for operational programmes under National Strategic Reference Framework Objectives 1, 2 and 3 and for the Fisheries Operational Programme 2007-2013, has drawn up an audit manual indicating the measures it takes to prevent and tackle fraud. In particular, specific questions have been added to the questionnaire on the systems audit so that the auditors can verify that entities in the system have put procedures in place to prevent and tackle fraud. In addition, the auditors ask the managing authorities whether they have reported suspected fraud cases and request information on the measures they have taken; they then take account of these findings when evaluating the entity. During preparations for systems and operations audits, account is taken of fraud indicators – such as those contained in the auditing standards and in the Commission's Information Note - for assessing risks in respect of certain audit questions or points, whereas during EDEL audits, fraud indicators are taken into account for the verification of documents or other evidence. Finally, in the case of complaints which upon examination are deemed to be valid, EDEL carries out an audit on that transaction, including the complementary sample. However, because it has been observed that simply applying these measures is not sufficient to achieve the expected results in preventing and detecting fraud, and taking into account the fact that the auditors do not have the expertise of those whose main responsibility is detecting and investigating fraud, EDEL has also taken an additional administrative measure. Specifically, in August 2012 a protocol on cooperation between EDEL and the Public Administration Inspectorate/Audit Office (SEEDD) was signed, establishing rules for cooperation between these two audit bodies based on exchange of information and two-way communication of their audit findings. This measure introduced a new practice which is expected to achieve results, given that the powers of the body in question provide a greater likelihood of detecting cases of fraud. Ministry of Rural Development and Food - Paying and Inspection Agency for Community Guidance and Guarantee Aid (OPEKEPE) The management and control system which governs direct payment schemes and rural development measures based on surface area or livestock, for which the competent authority is OPEKEPE, includes administrative checks, on-site checks and central computerised checks to ensure verification of compliance with the terms under which aid is granted and the requirements and standards relevant for cross-compliance. As also mentioned in Circular No 49680 of 24 April 2012 (Manual of Single Payment Scheme Procedures 2012), the objective is to automatically detect irregularities using computerised means, including cross-checks. The administrative computerised checks are carried out at prefectural and national levels and seek to identify any irregularities in relation to the information declared on single payment applications submitted by farmers. They can be informally divided into three categories: (1) the farmer's personal data and other information; (2) the cartographic base and the existence of land parcels and livestock, and (3) provisions of EU and national law. As stipulated in the above circular, suspected irregularities or indications of irregularities resulting from cross-checks have to be followed up by any other appropriate administrative procedure and, where necessary, by an on-the-spot check. These are only some of the many measures and/or audit procedures applied by the OPEKEPE for the detection and prevention of irregularities or fraud, where possible, before payment of the aid. Ministry of Rural Development and Food - Directorate for Planning and Agricultural Structures (DPGD) The DPGD, as the body responsible for implementing 2.1 Measures, has introduced a series of administrative measures which are already helping with prevention and early detection of fraud. These measures are as follows: (1) use of new forms for the certification of expenditure by the Monitoring Committees, with a view to stricter control of the investment project and the supporting documents provided by the entity; (2) provision for open procedures for the appraisal and approval of aid applications, and rules relating to the solvency of applicants; (3) checks via the internet and cross-checks against the information made public by the EFET, to determine whether the undertaking under this entity has been fined for adulteration of its products; (4) implementation of a check on the authenticity of the submitted letters of guarantee (cross-check of the information with the Bank) to avoid the submission of false documents, for applications submitted in response to the first call under Measure 123 A of the RDP 2007-2013; (5) implementation of a check on the authenticity of bank documents proving the entity's own contribution with the Bank which issued them before the approval of aid applications submitted in response to the second call under Measure 123 Α of the RDP 2007-2013; this is designed to avoid the submission of false documents and the provision of aid for investment projects which did not meet the own contribution requirement; (6) the documents submitted by the entity for the payment of aid must include the invoices of the company which manufactures the machinery and the corresponding delivery notes, in order to avoid overbilling; (7) following the implementation of Law 3861/2012 containing various provisions, including greater transparency through the compulsory posting on the internet of laws and central government, administrative and local authority acts under the 'Diavgeia' programme ['Diavgeia' meaning transparency], it is compulsory to post all contracts and acts concerning development laws, including acts which determine whether investments fall under development laws and decisions which allow the investments to enter into operation (Article 1(4)(15)); in order to avoid where possible any duplication of funding for aid applications, our department conducts checks, under the Diavgeia programme, both when evaluating the application and when issuing decisions on the pre-approval and final approval of investments under Measure 123 A; our checks ensure that the same body has not been approved under another development law; if it is found that the entity has also been included in another development programme, the relevant decisions are checked in order to avoid a situation where the same object of investment is approved under one or more programmes; (8) in the context of the interoperability of the public administration's computer systems, the process of implementing data exchange between the Directorate for Planning and Agricultural Structures and the General Secretariat for Information Systems has begun; in this way our Directorate will be informed directly of the entities' fiscal and financial data and of legal persons' shareholder structure. Following the checks provided for by the Community and national framework, which take place during the expenditure certification process so that the aid can be granted, and those carried out during the units' operational phase (in Greece these are annual checks), we also conduct checks on all units which cover a period of: (a) five years for machinery and ten years for subsidised premises in the case of investment projects which were approved and executed under Measure 2.1 of the 2000-2006 operational programme ‘Rural Development – Restructuring the Countryside’, and (b) five years both for subsidised machinery and for subsidised premises in the case of investment projects which were approved and executed under Measure 123 A of the RDP 2007-2013. In addition, following unscheduled checks carried out in response to complaints (e.g. EFET, SDOE and other entities or individuals), legislative infringements have been identified which in some cases can be considered as suspected fraud. The competent authorities have not been notified of these cases because all of the necessary measures required by the legislation (drafting the audit report, raising the issue with the advisory committee, forwarding the audit report, examining the entity's objections) have not yet been completed in order to allow our department to issue the respective final ministerial decisions imposing the administrative penalties provided for. The competent authorities will be notified of these decisions so that OLAF can be informed. Ministry of Rural Development and Food - Directorate for the Audit of Expenditure (DED) 1. Since its creation, our department has identified many irregularities in relation to which it has officially requested that the audited businesses refund the amounts deemed to have been unduly paid. 2. Our department takes all possible measures to detect irregularities. In particular: - it draws up the programme of checks for each inspection period by applying risk analysis methodology; - it selects the transactions to be audited by applying risk analysis methodology (risk analysis of businesses); - it verifies the accuracy of primary data under scrutiny by means of cross-checks, as provided for in Article 3 of Regulation (EC) No 485/2008. Cross-checking has increased in recent years, both in number and in the range of transactions checked; - it accepts requests for inspections from other Member States pursuant to Article 7 of Regulation (EC) No 485/2008 on mutual assistance, it carries out these inspections, and it sends requests for inspections to verify that the transactions forming part of the system of financing by the European Agricultural Guarantee Fund (EAGF) are genuine and comply with the rules.

ES || - The agriculture sector in Spain is very varied and complex, with aid applications that relate to a wide range of measures, including market measures and rural development measures, which are difficult to manage and liable to higher error rates. - This complicated and diverse system of aid and the difficulty interpreting and implementing it lead to errors by the beneficiary that are clearly unintentional irregularities and therefore do not involve fraud. - The very complexity of the sector implies the need for a more developed audit strategy with the associated human and financial resources. The number and thoroughness of the necessary controls guarantee that irregularities and suspected fraud, where relevant, will be detected. - In the light of the above, the fact that Spain reports few cases of suspected fraud does not mean that such cases are not pursued, rather that there are relatively few cases compared with the total number of irregularities. The detection of a possible case of fraud requires the Legal Services attached to the units responsible for controls to make appropriate referral of the case to the courts for the fraud to be established and, when that happens, the corresponding criminal penalties to be imposed. - For details of how control systems detect high-risk areas and step up checks and investigations to combat fraud, please refer to the comments in point 2.1 of the 2012 Questionnaire on Article 325 TFEU.

FR || The control system for EU agricultural funds is subject to a framework laid down by various EU Regulations, in particular Council Regulation (EC) No 485/2008 of 26 May 2008. The control systems which France has set up strictly adhere to the EU framework. In addition to simultaneous checks by paying agencies before aid is paid to beneficiaries, ex post checks are carried out after all aid has been paid (other than direct aid), based on an annual risk assessment submitted to the European Commission. There is a much greater likelihood of detecting cases of fraud or suspected fraud in market interventions than in direct aid. However, market aid accounts for only a very small share of total aid (less than 10 %). Thus no cases of fraud were reported in 2010, 3 cases in 2011 and 3 again in 2012. We would also point out that France considers as fraud any irregularities subject to a criminal procedure under Article 40 of the French Code of Criminal Procedure. In other words, an irregularity is classified as ‘fraud’ if the acts could constitute criminal offences. Any irregularities must therefore be such that they may be reported to the Public Prosecutor under Article 40, as referred to above. Intent must therefore be established by the inspection bodies on the basis of material facts. This situation is in line with EU law and the definition of fraud under the Council Act of 26 July 1995 drawing up the Convention on the protection of the European Communities’ financial interests. The Convention annexed to the Council Act provides for ‘criminal prosecution of fraudulent conduct injuring [financial] interests’. Moreover, Council Regulation (EC, Euratom) No 2988/95 of 18 December 1995 on the protection of the European Communities’ financial interests refers to the aforementioned Convention, defining fraud under one of the recitals as follows: ‘Whereas the aforementioned conduct includes fraudulent actions as defined in the Convention on the protection of the European Communities’ financial interests.’ In countries with long-standing, well-structured judicial, administrative and land-registration systems, it is more difficult to perpetrate fraud. There is no justification for trying to establish a relationship between the amount of aid granted by a Member State and the number of cases of suspected fraud or notified fraud without taking account of the framework of controls laid down by EU law and their implementation at national level. In response to the second part of recommendation 1 concerning the way in which control systems are used to improve fraud prevention and detection, we would stress the importance of the risk assessment carried out annually and submitted to the European Commission, which influences the control programme set up each year. This risk assessment takes into account several parameters, including the measures themselves, the amount of aid paid and the outcome of previous checks. It helps to predict and to better target cases where irregularities are most likely, thereby improving fraud prevention and detection. The system for structural funds is laid down in particular by Commission Regulation (EC) No 1828/2006 of 8 December 2006. This Regulation provides for checks at different levels to ensure that expenditure declared to the European Commission is sound and that procedures have been complied with, in order to protect the interests of the European Union. To date, France has reported 70 cases of non-fraudulent irregularities to OLAF. These irregularities were not considered fraudulent as there was no sign of intent (see above explanation concerning Article 40 of the Code of Criminal Procedure and Regulation (EC) No 2988/1995). As with agricultural funds, fraud prevention in relation to the Structural Funds is based on a risk assessment for the purposes of drawing up the control plan.

IT || We consider that Recommendation 1 does not apply to Italy, but only to the following countries: Belgium, Cyprus, Denmark, France, Malta and the Netherlands.

CY || Replies from CAPO (the Paying Agency in Cyprus for Agricultural funds): The definition of “suspected fraud” according to Commission Regulation (EC) No1848/2006 provides that “suspected fraud’ has the meaning assigned to it by Article 1a point (4) of Regulation (EC) No 1681/94, that is an irregularity which has been subject of a primary administrative or judicial finding giving rise to the initiation of proceedings at national level in order to establish the presence of intentional behavior, in particular fraud as is referred to in Article 1(1) point (a) of the Convention of 26 July 1995 on the protection of the European Communities’ financial interests drawn up on the basis of Article K.3 of the Treaty on European Union” From a legal point of view, the definition of “suspected fraud” sets the following condition: “…the initiation of proceedings at national level in order to establish the presence of intentional behavior, in particular fraud…” This condition raises an additional issue, namely that of the strict interpretation of the definition, and inserts an additional element that needs to be satisfied in order for a case to fall within the meaning of the definition. Nevertheless, and in addition to the above note, we shall note that the prescribed procedures are followed and those cases that fall within the definition of “suspected fraud” are reported accordingly. CAPO (the Paying Agency) has the Anti-Fraud Service which is the Special Department according to article 11 of Council Regulation (EC) No 485/2008. The Service has, in addition, advisory competences for all antifraud issues with regards to EU funds. Specifically, the Service advises the Commissioner for Agricultural Payments (Head of CAPO) with regards to the legal responsibilities of CAPO on the protection of the financial interests of the EU and the fight against fraud. The Commissioner, through the Anti-Fraud Service informs all the departments of CAPO on a continuous basis, on the actions and the initiatives they should undertake, as well as the corrective and preventive measures they should adopt in order to fight fraud and protect the financial interests of the EU. The Anti-Fraud Service, apart from the trainings that organises and/ or carries out for the personnel of CAPO, whenever it notices that there is weakness in the control systems of CAPO and the national legislation, prepares and submits analytical opinions to the different departments, on how they could correct these weaknesses in order to avoid and prevent future problems. Therefore, CAPO gets important information, guidance and advice from the Anti-Fraud Service, in order to continuously improve fraud detection and prevention. With regards to the way in which their control systems target high-risk areas to improve fraud prevention and detection, we must mention that we reach to our samples after risk analysis. Furthermore, experience has indicated which stages in the procedure and which sectors carry the highest fraud risk, therefore CAPO enhances its procedures and control system to that end. For the Cohesion Policy area, during 2011 no fraud or suspected fraud cases were identified mainly due to the fact that the management and control system has several levels of control (eg. Verifications by the MA and IBs, reviews by the Certifying Authority and audits of systems and projects by the Audit Authority. The verifications are carried out ex ante on non declared amounts to the EC and therefore any errors or irregularities are identified early and are deducted from the declaration before send to EC. Ex post controls are also made on the spot at the Beneficiaries. The MA and IBs give particular attention/focus to those areas or Beneficiaries which were susceptible to irregularities to improve their systems and procedures.

LV || EU funds Managing Authority (MA) has performed several actions in order to control, evaluate and prevent risks of irregularities including risk of “suspected fraud”. Management and control system Latvia has designed taking into account possible risks regarding corruption and fraud. Also corruption and fraud prevention mechanisms have been built into management and control system at different stages of implementation process. Besides up to now several amendments of national regulation regarding irregularity detection and reporting has been made. The main amendments are related to the use of proportional financial corrections in the cases where precise irregularity amounts cannot be estimated and related to illegal employment issues. Furthermore in order to provide common understanding of issues related to irregularities and suspected fraud, MA has created (and performing regular updates) the guidance on irregularity (including fraudulent cases) detection, prevention and reporting. Guidance note include examples of different type of irregularities and actions in cases of detected suspected fraud cases. Quarterly organized meeting with all in EU funded project monitoring involved institutions ensure common understanding and analyses of quarterly detected irregularities and suspected fraud cases. Within the meetings the decision upon the cases which should be reported to EC/OLAF has been made. The questions related to fraud prevention and risk detraction are discussed in national AFCOS meetings. Within these meetings according to the initiation of MA, the decision on technical (working level) meetings has been adopted. Furthermore outcome of these meetings has been the seminars and workshops for prosecutors and judges. Within these seminars MA presented the overall EU fund system in Latvia as well as discussed several case studies related to suspected fraud and fraud. Issues regarding the risk mitigation have been covered in yearly meetings with all institutions involved in EU fund monitoring as well as social partners and NGO’s. Within the MA the risk management process has been created and the risk of conflict of interests, fraud and corruption is classified as intermediate risk. Managing Authority of the European Agricultural funds provides an explanation of the fact that agricultural land is visually inspected every year and the information thus obtained is taken into account when administrating applications for area payments thus, diminishing opportunities for dishonest behavior of applicants, fraudulent activities and possibilities of improper fulfillment of tasks. Data necessary for the administration are received from State institutions and other institutions, electronically thus, reducing opportunities for dishonest behavior of applicants, fraudulent activities and possibilities of improper fulfillment of tasks; As provided by the EU legislation, Ex-post evaluations must be carried out under EAFRD to the extent of 1% however, in order to ensure a more effective protection of the EU finances and to reduce opportunities for improper fulfillment of tasks and fraudulent activities, it is adopted in Latvia that upon evaluation of relevancy of the objective, depending on the risk level of a support program, on-the-spot checks are carried out to the extent of 5%-100% of the implemented projects.

LT || In Lithuania, the procedures for investigating, identifying and eliminating irregularities in projects being implemented within the framework of measures under a given programming period (hereinafter 'projects') are laid down in the following documents: - for projects financed with EU Structural Fund resources on the basis of the Single Programming Document for Lithuania for 2004–06, in the Rules for the administration and financing of Lithuanian Single Programming Document (SPD) measures for 2004–06 and projects financed under those measures, as approved by Order No 1K-033 of 28 January 2004 of the Lithuanian Minister for Finance; - for projects financed using Cohesion Fund resources for 2000–06, in the Rules for administering European Union Cohesion Fund resources in Lithuania, approved by Lithuanian Government Resolution No 1026 of 24 August 2001 and the Rules for identifying and eliminating irregularities in the use of EU financial assistance and laying down restrictions on obtaining EU financial resources, approved by Order No 1K-307 of 17 October 2005 of the Lithuanian Minister for Finance; - for projects financed from EU funds for 2007–13, in the Rules for administering and financing operational programmes, approved by Lithuanian Government Resolution No 1225 of 12 November 2008, the Rules on project administration and financing, approved by Government Resolution No 1443 of 19 December 2007 (hereinafter 'the Rules on project administration and financing'), and the Methodological recommendations for investigating and identifying irregularities, approved by Order No 1K-173 of 29 May 2009 of the Minister for Finance (hereinafter 'the Methodological recommendations for investigating and identifying irregularities'). The above legislative instruments stipulate that where an implementing authority suspects an irregularity and/or has received information about a suspected irregularity from another authority, it begins an investigation of the irregularity following the procedures laid down in legislation and, having assessed the nature of the alleged irregularity, if it suspects any criminal activity, it immediately informs the Financial Crime Investigation Service (FNTT) under the Ministry of Internal Affairs, which is authorised to detect and investigate criminal acts and other breaches of the law connected with the receipt and use of financial support funds from the European Union (EU) and foreign States. For example, during the SPD period, nine (9) of the three hundred and twenty two (322) irregularities identified by the implementing authority were connected with criminal activity (three involved criminal activity and six suspected criminal activity), while during the 2007–13 programming period, of the one thousand (1 000) identified irregularities, ten (10) were categorised as suspected fraud. Information on these irregularities was passed on to the FNTT, and OLAF was notified about eight (8) irregularities occurring during the SPD period and nine (9) irregularities during the 2007–13 programming period that were connected with criminal activity. At each stage of the implementation of an operational programme or project, measures are also taken with the aim of preventing irregularities and providing for their monitoring and control: 1. At the programming stage: when establishing investment axes and priorities, and compiling descriptions of measures and the terms and conditions of project financing, risk areas are assessed and initial assertions are drawn up with a view to preventing irregularities. 2. At the project financing application assessment stage: the risk of irregularities is established when assessing applications for project financing (hereinafter 'applications'). During such assessments, in addition to other information, a check is carried out to ascertain whether the applicant has previously submitted an application for support from European Union, Lithuanian national or municipal budgetary funds or resources, or from the funds of a government body of an EU Member State or non-EU country in respect of the project being assessed, at an earlier stage in the project or relating to part of the project, and whether the application being assessed or part; and whether the application being assessed or part of the application is supplementing any other project to which financing has already been allocated or will be allocated. Where any such facts are established, additional provisions and restrictions relating to the risk/control of irregularities are incorporated into the project financing and administration contract. 3. At the project implementation stage, by: 1) checking and certifying payment requests; 2) performing on-the-spot checks; 3) preventing the risk of double financing of the same expenditure under the same activity – this is systematically provided at the project programming, assessment and implementation stages; 4) managing project risk – project risk is assessed in terms of potential double financing and ineligible procurements, and preventative risk management measures are applied; 5) carrying out prior monitoring of procurements by non-contracting authorities and follow-up procurement monitoring – prior assessment of procurement documents and an evaluation of the procurement are carried out on the basis of a pre-procurement monitoring risk analysis; 6) managing irregularities – investigating, identifying and resolving project irregularities; 7) performing ex-post checks – up to five years after the completion of a project assessments are made of whether there are any circumstances giving rise to the termination of the contract or the return of support funds, or that otherwise affect the funding provided. Preventative measures also include publicity activities to inform the public, project implementers and their founding entities and competent authorities about identified irregularities and cases of fraud, involving the sharing of information between the bodies that administer EU structural support; where necessary information is passed on to the FNTT, the Special Investigation Service and the Public Procurement Office. Implementing authorities have also set up additional measures for the prevention of irregularities in their internal project risk management procedures; they organise training courses for staff and project implementers, and are developing cooperation with project implementers with a view to drawing their attention to areas of project administration that are subject to the highest levels of risk and to possible sanctions where irregularities are identified.

LU || The audits of ESPON operations have found the following error rates: 0% for the reference year 2009, 0.17% for 2010, and 1.09% for 2011. No cases of suspected fraud were revealed for the 2007-2013 ESPON programme. Applications were found to be ineligible for the following reasons: incomplete audit trails for staff costs, incomplete audit trails for public procurement procedures, and lack of evidence of first-level control of administrative costs. The ESPON programme has introduced quality checks for operations, to be carried out by the Certifying Authority, and quality checks for first-level financial control systems, to be carried out by the EU Member States and Partner States. This is coordinated with the Managing Authority and the ESPON 2013 JTS. Both types of quality checks are specifically targeted at operations and beneficiaries which by risk analysis have been found to have a high-risk profile. Quality checks of first-level financial control systems are scheduled to take place at least once during the programme’s implementation period in every participating country. The number of irregularities detected in the 2007-13 ERDF Programme was very low: 0.0009% for 2009, 0.00005% for 2010 and 0% for 2011. Fraud has not yet been detected. As regards OLAF’s recommendations (other than recommendations 2, 3 and 5, which do not concern the ERDF managing authority), the low number of fraud cases detected for cohesion policy undoubtedly results from the high number of checks the structural fund beneficiaries are subjected to from their application to the moment their subsidy is paid and their file closed. The managing authority has put in place a management and control system that imposes accounting, financial and legal monitoring backed up by frequent on-the-spot checks, all of which contribute to the low number of irregularities found. Our operations are in turn checked by the Inspection générale des finances, and it confirms the very low number of irregularities.

HU || 1.1 Agriculture 1.1.1 The authority competent in agricultural support (Agricultural and Rural Development Agency - ARDA) puts special emphasis on fraud prevention. The related actions are defined in the legislation laying down the procedures for the paying agency and in internal rules of procedure and implementation manuals. An example of legislation is the amendment in 2009 of Act XVII of 2007 on the proceedings of that authority, as a result of which the concepts of ‘intentional action’ and ‘negligence’ were defined at statutory level with regard to agricultural support. The definition of intentional action also helps preventing any fraud potentially committed by clients. The ARDA regularly reviews the irregularity reports sent to the OLAF within the framework of its monitoring activities in order to make the description of the irregularity method and the irregularity category (irregularity, suspected fraud, fraud) consistent in the awareness of the developments occurred in the meantime regarding the particular case. Whenever there was a need, the authority changed the irregularity category from ‘irregularity’ to ‘suspected fraud’. It is possible though that the concepts of fraud and irregularity may still not be fully identical in the various Member States, because the distinction may also be significantly influenced by national practice and legislation. 1.1.2 The way to identify high risk areas by the control system to improve fraud prevention and detection: In line with the relevant legislation, administrators of the respective authority also obtain prior information on the reliability of the client in the course of the administrative control of support applications submitted to the European Agricultural and Rural Development Fund under the title of investment, in order to be able to review the transaction or investment project providing the basis for the application more thoroughly and in more detail, if justified. In the area of on-the-spot checks, the ARDA has introduced a data mining procedure based methodology several years ago in order to support risk analysis based selection. The methodology relies on the results of earlier on-the-spot checks and can effectively forecast potentially risky transactions. It can be indicated in the case of the individual support titles that the applied procedure is effective, because the number of detected errors is significantly higher in the samples selected with risk analyses than in the random samples, used as reference. Cohesion Policy According to the information received from the National Development Agency (NDA) the breakdown of the irregularity reports for the 2009‑2011 period by year shows a major decline in the number of reported irregularities in 2011. Over the last three years, the breakdown of the amounts affected by irregularities by year was as follows: The ratio of amounts affected by in irregularities was 76% in 2009, 18% in 2010 and 6% in 2011.[17] The decline in the number of irregularities and the low number of cases reported as suspected fraud stems from the strengthening of the co-ordination of controls since 2011 and the effective control environment. In 2011, the competent National Development Agency (NDA) carried out a complete review of the single operational manual, issued in the form of a ministerial directive for the use of support. The Agency also developed an irregularity management system, which may be monitored electronically. The single operational manual regulates the on-the-spot checks and document-based checks by the Intermediate Bodies within the framework of level one checks. The purpose of level one checks is to mitigate the risks stemming from the implementation of projects. The system of document-based checks was established in all phases of the support management process (application, contracting, payments etc.). The complete checks are performed by the parties to the process (project manager, financial officer etc.) on the basis of the documents uploaded electronically or submitted in hard copy by the Beneficiary. Document-based checks are supplemented by the sample-based on-the-spot checks. 1.2.1 On-the-spot checks, irregularity procedures, reports The Intermediate Bodies conducted 7161 on-the-spot checks in 2011 in relation to the Operational Programmes, broken down as follows: Operational programmes || TOP || EEOP || SROP || SIOP || EDOP || EPAOP || STROP

Number of on-the-spot checks || 127 || 381 || 988 || 1002 || 1481 || 25 || 24

Operational programmes || WTOP || CHOP || NGPOP || SGPOP || STOP || NHOP || CTOP || IOP

Number of on-the-spot checks || 279 || 917 || 436 || 364 || 344 || 511 || 255 || 27

Source: Report to the Government on the status of the audit of assistance from the European Regional Development Fund, the European Social Fund and the Cohesion Fund in 2011 (Ministry of National Economy)

Not only is the number of first-level checks increasing. The control activities of the organisations auditing EU support (DGAEF: Audit Authority), the Government Control Office (GCO), the State Audit Office (SAO), the European Commission (EC), the European Court of Auditors (ECA), OLAF (the European Anti-Fraud Office) have been increasing gradually since 2007. While 77 audits were conducted at the Beneficiaries in 2007, this figure has increased to 419 in 2011. The DGAEF conducted 402 audits, while the other external audit bodies completed 17 audits in 2011. Pressured by the European Parliament, the EU agencies have intensified their audits recently, because the net donor Member States have ever greater expectations with regard to the proper use of the amounts they have contributed.

The total number of irregularity cases launched in 2011 and conducted by the Legal Department of the National Development Agency: 276 (of which suspended: 14, no irregularity found: 139, irregularity found: 123). Number of reports in the irregularity cases launched in 2011: 4.

1.2.2 Audit of Public Procurement Procedures

The regularity of public procurement procedures is audited by the Public Procurement Supervision Department (KFF) operating within the NDA. In the programming period 2007‑2013, the KFF applies process-embedded checks, as a general rule, pursuant to Government Decree No 4/2011. (I. 28.) on the use of support from the European Regional Development Fund, the European Social Fund and the Cohesion Fund (hereinafter: 'Decree'), in the case of public procurement procedures supported from resources originating from the European Union regarding the supply of goods or services reaching or exceeding the EU thresholds and, in the case of public works contracts and construction concession, public procurement tenders reaching or exceeding three hundred million forints. There are two subsequent phases of process-embedded checks applied to such procedures:

· quality control prior to the launch of public procurement tenders (evidenced by issuing a quality control report or certificate),

· regularity audit tasks conducted after the launch of the procedures (evidenced by issuing a regularity certificate).

Other tasks of the KFF:

· ex post checks (evidenced by an ex post audit report),

· verification of contract amendments.

Public procurement tenders for the supply of services or goods below the EU thresholds, and public procurement tenders for public works contracts and construction concessions below three hundred million forints are audited by the Intermediate Bodies.

Between 8 December 2010 and 30 June 2012 the KFF conducted audits in relation to 2 771 public procurement tenders.

A KFF tevékenysége során ellátott feladatok alakulása a vizsgált időszakban || Tasks performed by the KFF in the period under review

(2010. december 8.-2012. június 30.) || (8 December 2010 – 30 June 2012)

Minőségellenőrzés || Quality control

Utóellenőrzés || Ex post checks

Szabványossági tanúsítvány || Regularity certificate

Szerződésmódosítás || Contract amendment

Concerning the reports and certificates issued in relation to the quality control tasks of the KFF, this rate of more than 61% represents 1 756 quality control reports and 1 971 quality control certificates in the first round of 2 771 public procurement procedures.

The regularity reports prepared in relation to the regularity of the procedures make up only 27.34% with regard to the audited period, involving 1 662 reports, i.e. 1 662 public procurement procedures, during which an observer appointed by the KFF conducted process-embedded checks during the 19 months of the audit period. On average, more than 87 public procurement procedures were closed in one month.

With regard to public procurement tenders conducted earlier and closed with a contract, the contract already signed had to be modified on 371 occasions, i.e. in 6.10%, in relation to which the KFF expressed its prior legal opinion.

Pursuant to the Decree, ex post checks falling within the competence of the KFF had to be conducted only for 5.22% of the contracts within the period under review, i.e. the ex post services of the KFF were required in 317 procedures in compliance with the provisions of the Decree in relation to the supply of goods and services above the EU threshold and public works contracts and construction concessions over three hundred million forints. The Beneficiaries also submitted numerous requests to the KFF requesting its position statements.

The KFF applies prior quality control in several (at least two) rounds to most documents. If the KFF remarks contained in the quality control report are all reflected in the documents launching the public procurement procedure, the KFF issues a supportive quality control certificate for the Beneficiary. However, if the Beneficiary fails to integrate the problems and recommendations described and made by the KFF in the documents, or does not provide a thorough explanation to them with facts and, therefore, the audit experts cannot waive their remarks, a non-supportive certificate is issued. The supportive certificate cannot be issued until all the remarks made by the KFF are integrated into the documents and, therefore, in particular cases the quality control process may take 4, 5 or, in exceptional cases, even 6 rounds.

Minőségellenőrzési jelentések és tanúsítványok alakulása || Quality control reports and certificates

1 körös minőségellenőrzés || 1st round quality control

3. körös minőségellenőrzés || 3rd round quality control

5. körös minőségellenőrzés || 5th round quality control

2. körös minőségellenőrzés || 2nd round quality control

4. körös minőségellenőrzés || 4th round quality control

6. körös minőségellenőrzés || 6th round quality control

The figure clearly shows that in 47.64% of the cases the Beneficiaries accepted the findings of the first round quality control reports. The Beneficiaries reviewed the tender documents after receiving the remarks made in the first round, deemed the KFF remarks justified and corrected the documents of the public procurement procedures accordingly. In 39.50%, the proposals made by the KFF were accepted only according to the certificate of refusal, issued after the first round of the quality control process. Quality control was conducted in three rounds only in relation to 371 public procurement tenders, in four rounds in relation to 79 tenders, in five rounds in relation to 17 public procurements, in six rounds in 5 cases and in seven rounds in relation to 2 public procurement procedures before the Beneficiary accepted the contents of the certificates, corrected and returned the documents of the tender for quality control in terms of the public procurement law.

Between 8 December 2010 and 30 June 2012 the KFF conducted checks in relation to 665 Contracting Authorities and 2 771 public procurement tenders. In total, 6 083 documents were issued on the audits in the form of quality control reports, quality control certificates, ex post audit reports relating to public procurement procedures and prior legal position statements concerning contract amendments.

Activities of the KFF, performed in the entire period covered by this study:

A KFF tevékenysége a vizsgált teljes időszakban || Activities of the KFF in the entire period under review Total

• árubeszerzés || • Purchasing of goods

• építési beruházás || • public works contract

• szolgáltatás megrendelés || • purchasing of services

• állásfoglalás || • position statements

• mindösszesen || • grand total

The above figure illustrates the types and numbers of documents issued in the course of the checks conducted by the KFF between 8 December 2010 and 30 June 2012 according to the subject matter of the public procurement procedures.

1.2.3. In the course of its audits, the Directorate General for Audit of European Funds (DGAEF), the Audit Authority, typically discloses irregularities and forwards them to the institution system for further action. Part of the irregularities revealed do not need to be reported because they are below the reporting threshold and, therefore, pursuant to the regulations, not all irregularities are reported to the OLAF Co-ordination Office.

The Audit Authority selects its annual systems audit topic by risk analysis. The risk analysis is based on the results of former audits (system and project audits) and the outcomes of audits conducted by other agencies. The topic of a systems audit is selected by identifying high-risk areas, on which the AA focuses its attention during its activities. That methodology helps preventing irregularities and fraud.

MT || Agricultural Policy: As part of its ‘going concern’ approach, the Malta Paying Agency reviews its administrative controls on a continuous basis in order to strengthen its administrative checks and controls. Amongst the measures which the Paying Agency has adopted throughout the past years, of which measures compliment those control systems established by EU Legislation, one notes the following: - the enhancement of a Quality Control Unit within the Paying Agency’s hierchical structure; - the setting up of an IT module which integrates the IACS database with the accounting/payments module; - the development of an IT module which helps investments measures to trigger cases of double funding; and - the continuous upkeep of the Land Parcels Identification Systems (LPIS). Cohesion Policy: Malta adopts a centralised system for project implementation which includes procurement, payment and verification of expenditure. This means that, Malta adopts a system where all tenders published above €47,000 are vetted before publication by a central government department to ensure that the obligations emanating from the Public Contracts Regulation are adhered to. In addition the same department reviews the recommendations as prepared by the evaluation committee appointed by the contracting authority. This effectively means that there is a multi level of scrutiny of the procurement process. Malta pre-financing all payments made in relation to operations approved under the Structural and cohesion fund. This means that all invoices are processed (paid) by Treasury after that these have been certified by the Project leader and reviewed by the Line Ministry. Finally, as part of the verification of expenditure the MA undertakes 100% desk based check on all invoices processed through the system and included in a payment claim to the Commission, which are complemented by the 100% on-the-spot documentary check. Such a system is intended to ensure that mistakes are identified prior to the inclusion of expenditure in a payment claim to the Commission. The Managing Authority would like to highlight that when there is doubt, expenditure is not included in a payment claim to the Commission and the matter is referred to the relevant authorities for further investigation as needed. It is the Police that then decides on whether there is action that should be taken. The MA is then guided by the advice provide by the relevant body/entity. ||

NL || Structural Funds Administrative measures/procedures: ESF: the Ministry of Social Affairs and Employment (SZW) Agency (the managing authority) has developed a policy framework on fraud and irregularities which emphasises prevention. Preventive measures include national information meetings with applicants, building in many opportunities for contact with applicants from the time of application until after submission of the final declaration, recording experiences with applicants and applying risk analyses to applicants and advisors. Administrative measures/procedure ERDF: in an effort to improve the risk management system, a risk profile is being produced for each project in the current period, so that the risks associated with a project will be clear to everyone within the managing authority. Agriculture In the Netherlands virtually every irregularity detected can be dealt with under administrative law, for example by recovering deductions that should have been made but were not, or recovering amounts wrongly paid out, plus the appropriate administrative penalties. The criminal law is a measure of last resort, used only when administrative law is inadequate for levying or recovering sums of money, for example in the case of irregularities affecting the national budget or the EU budget. ||

AT || Austria will only take position to points, where Austria is directly mentioned (we are against further informal questionnaires to avoid additional administrative burdens). As Austria is not mentioned in the follow-up recommendations of the COM fraud report 2011, please do not expect any further comment on this document. ||

PL || In view of the proportion of cases of fraud among the total number of irregularities, Poland believes that the identification of particular risk areas is satisfactory. The checking mechanisms introduced – internal procedures, checks carried out by bodies participating in the management and control system (during project implementation, upon completion, after completion, cross-checks, checks on documents) and external inspections carried out by the UKS (Treasury Control Office), the NIK (Supreme Audit Office) and the UZP (Public Procurement Office), supplemented by the mechanisms described previously – ensure a high degree of fraud detection. Whenever an event that meets the definition of 'irregularity' is discovered it is individually and thoroughly investigated. Next a check is carried out to assess whether the event meets the criteria for being considered a criminal offence under the Penal Code, the Violations Code or other legal provisions. The law enforcement agencies are informed if, under these criteria, it is suspected that fraud has been committed. If the irregularity relates to the amount of 10,000 euro or more, chargeable to the general budget of the Communities the European Commission is also informed. To identify the risk areas of particular importance one uses i.a. fraud indicators defining the way in which checks are carried out: general indicators (e.g. types of irregularity, types of beneficiary/economic operator, types of operation, the modus operandi, geographic areas, the amount of aid) and specific indicators (e.g. projects, transactions, beneficiaries, amount of aid requested and changes thereto, results of previous inspections, etc.). If new objectives or risk areas emerge, the doubts arising are clarified by means of additional checking activities, including in cooperation with other bodies. ||

PT || In agriculture, according to IFAP, Member States have to identify cases of suspected fraud when they report irregularities to the Commission departments. They have been doing so since 2006. However, the concept of irregularities covers intentional and unintentional non compliance. Moreover, as stated in OLAF’s reports, most cases of suspected fraud are detected in the course of judicial investigations or tax inspections. As regards the detection of irregularities and subsequent recovery of undue payments, the relevant national authorities will continue, as in previous years, to take all appropriate administrative, judicial and/or enforcement measures to protect the financial interests of the EU and to counter fraud. With a view to improving the control system, IFAP adopted internal procedural instruction No JC-121/01 setting out the procedure to follow whenever there is an indication that an irregularity detected in a request for aid or assistance is a result of deliberate non compliance by the beneficiary. It clarifies the procedures for reporting to the relevant judicial authorities all acts by the beneficiary of which the control authorities are aware and which indicate that a crime may have been committed. It also calls for compliance with Community legislation in this area, which lays down more serious penalties for infringements that are committed deliberately or as a result of serious negligence. In cohesion policy, it was found that the irregularities detected to date did not raise suspicions of fraud but were in the main merely formal. Audit activities are designed to prevent and detect irregularities with a view to correcting and recovering funds unduly paid. The strategy of separate audit structures contained in the audit plan is designed to reduce the risk of fraud and help to detect cases of fraud in accordance with the findings of system audits, or in other words the confidence level attributed to the management and control system. If a large number of errors are detected when operations are audited, the confidence level will be ‘low’ and the number of interventions will be higher. If the error rate is low, a higher confidence rating will be given (‘medium’ or ‘high’) and the number of checks required by the strategy will be correspondingly lower. The strategy is defined each year by the audit authority (IGF) subject to the procedures and criteria laid down in the Audit Manual. Likewise, the management authorities carry out regular physical and administrative checks with a view to preventing and detecting fraud. Thus, according to IGFSE, the decrease in the number of suspected fraud cases is largely due to the effectiveness of the system set up for risk assessment and control of the entities with access to ESF funding. The system is built on a database managed by IGFSE containing historical data on the professional conduct of all entities receiving ESF funds. The data are recorded in SIIFSE in encoded form showing the risk grade of the entity. Access and control (whether by the management authority or the audit authority) depends on the code attributed to the entity, i.e. the level of risk it represents. The most serious cases are attributed codes H or Z. Code H is attributed to entities found guilty, by a decision not subject to ordinary appeal, of a criminal offence involving the use of public funding under the structural funds. In view of the seriousness of such cases and the risk involved, entities attributed code H are prevented from accessing ESF funds for a period of two years or for the period set in the judicial decision if it is longer. Code Z is attributed to entities against whom a charge or allegation of a criminal offence has been brought. Code Z is attributed to entities against whom a charge or allegation of a criminal offence has been brought. Apart from these two situations, in which there is proof or suspicion of criminal practices and which therefore justify blocking access to ESF funding or making it conditional, there are other situations involving moderate risk where tighter checks on the entity are justified. These situations are attributed code L and apply to entities found in the course of inspections or audits to have committed financial, accounting or organisational irregularities which do not involve any criminal offence. Lastly, entities that pose no risk of fraud or misuse of structural funds are attributed code M. ||

RO || Romania's control systems have been improved through the introduction of new methods and by the development of existing methods, as follows: 1. In 2012, the pilot system for the ex-post verification of conflicts of interest/fraud on the basis of a risk analysis was finalised and put into operation. 2. In the case of sample-based checks, Romania uses pre-determined criteria with a clearly defined purpose based on the risk analysis method, which is used to select beneficiaries for document checks and on-the-spot checks. This risk analysis working method and the indicators/criteria used are detailed in the working procedures. The main indicators used in the risk analysis are the following: the nature of the beneficiary, the total cost of the project/total eligible amount paid in the year of calculation, the time elapsed since the last control, the field of application of the measures (infrastructure, processing, alternative income, etc.) and irregularities detected during previous controls. ||

SI || Slovenia is regularly reporting on cases with suspicion of fraud. Suspected fraud cases are reported and practice is exercised in agriculture and in cohesion policy areas during all the past years, since there exists the option to report these category cases via IMS. Financial controls in accordance with the risk assessment always take into consideration risk of fraud and risk of corruption. Internal controls and auditors are aware of risk of fraud. Budget Supervision Office of the RS (BSO) has among the tasks also constant raising of awareness on the presence of possible fraud, on duty to report it via notification of irregularities via IMS. BSO supports, stimulates and shares incentives for all users of european and public financial funds to have on place fraud risk indicators and manuals to detect fraud. BSO controls notification of irregularities. BSO on the basis of evidence or documents demands the change of notification of irregularity into notification of suspicion of fraud, where appropriate. ||

SK || In 2011, 13 cases of suspected fraud and 20 fraud cases within the meaning of the Convention were reported to OLAF. In 2012, due to methodological modifications in the reporting of irregularities to OLAF (the implementation of the de minimis rule within the reporting of irregularities to OLAF) and because of difficulties in identifying the total amount of irregularities in the case of suspected fraud, the number of suspected fraud cases reported to OLAF decreased. Nevertheless, it is clear that the efficiency of management and control systems have become increasingly better, which can be demonstrated by the fact that the total number of register