TABLE OF CONTENTS

LIST OF ABBREVIATIONS...................................................................................................... 6

PART I – INTRODUCTION AND METHODOLOGY.............................................................. 8

1........... INTRODUCTION........................................................................................................ 8

1.1........ Scope of the document................................................................................................... 8

1.2........ Structure of the document............................................................................................... 8

2........... THE EUROPEAN UNION BUDGET........................................................................... 9

2.1........ Revenues........................................................................................................................ 9

2.2........ Expenditure.................................................................................................................. 10

2.3........ Management of the Budget........................................................................................... 11

3........... THE LEGAL FRAMEWORK FOR IRREGULARITIES REPORTING...................... 12

3.1........ The legal framework..................................................................................................... 12

3.1.1..... The reporting obligation................................................................................................ 13

3.1.2..... Derogations to the reporting obligation.......................................................................... 14

3.2........ Implementation of the Reporting Obligation................................................................... 14

4........... DEFINITIONS............................................................................................................ 15

4.1........ Legal definitions............................................................................................................ 15

4.1.1..... Irregularity.................................................................................................................... 15

4.1.2..... Fraud........................................................................................................................... 15

4.1.3..... Suspected fraud............................................................................................................ 16

4.2........ Indicators..................................................................................................................... 17

4.2.1..... Irregularity and Fraud Rates.......................................................................................... 17

4.2.2..... Fraud Frequency and Fraud Amounts Levels................................................................ 17

5........... METHODOLOGY...................................................................................................... 18

5.1........ Data Capturing – The irregularity reporting systems....................................................... 18

5.1.1..... OWNRES................................................................................................................... 18

5.1.2..... Irregularity Management System (IMS)......................................................................... 18

5.1.2.1.. The modules................................................................................................................. 18

5.1.2.2.. The national structures and users................................................................................... 19

5.1.2.3.. Data input and data quality............................................................................................ 21

5.1.2.4.. Impact of IMS on irregularity reporting.......................................................................... 22

5.1.3..... ABAC – Recovery context........................................................................................... 22

5.2........ Data analysis – cases of irregularity and (suspected) fraud.............................................. 23

PART II - REVENUES.............................................................................................................. 25

6........... TRADITIONAL OWN RESOURCES (ANNEXES 3-13).......................................... 25

6.1........ Management of Traditional Own Resources (TOR)....................................................... 25

6.1.1..... Monitoring of establishment and recovery of TOR......................................................... 25

6.1.2..... Procedure for managing Member States’ reports for write-off........................................ 26

6.1.3..... Particular cases of Member State failure to recover TOR............................................... 27

6.2........ Reporting discipline....................................................................................................... 28

6.2.1..... Year of discovery versus year reported......................................................................... 28

6.3........ General trends.............................................................................................................. 29

6.3.1..... Types of irregularity and fraud....................................................................................... 29

6.3.2..... TOR and cigarettes....................................................................................................... 31

6.3.3..... Data main sectors TOR................................................................................................ 31

6.4........ Detection of fraud and irregularity.................................................................................. 31

6.4.1..... Member States' control systems – Method of detection expressed in cases.................... 31

6.4.2..... Member States' control systems – Method of detection expressed in monetary terms..... 32

6.4.3..... Customs procedures affected to fraud and irregularity in 2010....................................... 33

6.4.4..... Percentage of established or estimated amounts in OWNRES to collected TOR............ 35

6.5........ Recovery...................................................................................................................... 37

6.5.1..... Recovery rate............................................................................................................... 38

6.6........ Conclusions.................................................................................................................. 38

PART III - EXPENDITURE...................................................................................................... 40

7........... AGRICULTURAL EXPENDITURE (Annexes 13-14)................................................ 40

7.1........ Introduction.................................................................................................................. 40

7.2........ Financial Year 2010..................................................................................................... 42

7.2.1..... Financial Year 2010: cases reported............................................................................. 42

7.2.2..... Financial Year 2010: reporting discipline....................................................................... 43

7.2.3..... Financial Year 2010: financial follow up of irregularity cases........................................... 45

7.3........ General trends.............................................................................................................. 48

7.3.1..... Financial Years 2006-2010: impact on the budget......................................................... 48

7.3.2..... Financial Years 2006-2010: cases classified as suspected fraud..................................... 51

7.3.3..... Financial Years 2006-2010: overview per budget post.................................................. 53

7.3.3.1.. Financial Years 2006-2010: decoupled direct aids (B-050301)..................................... 55

7.4........ Specific analysis............................................................................................................ 57

7.4.1..... Financial Years 2004-2005: expenditures and cases reported per Member State........... 58

7.4.2..... Financial Years 2004-2005: expenditures and cases reported per budget post............... 61

7.4.2.1.. Financial Years 2004-2005: fruits and vegetables (B-050208)....................................... 63

7.4.2.2.. Financial Years 2004-2005: direct payment for arable crops (B-050203)...................... 66

7.4.2.3.. Financial Years 2004-2005: beef and veal (B-050302)................................................. 71

7.4.2.4.. Financial Years 2004-2005: rural development (B-0504xx)........................................... 74

7.4.2.5.. Financial Years 2004-2005: milk and milk products (B-050301)................................... 76

7.4.2.6.. Financial Years 2004-2005: olive oil (B-050206).......................................................... 77

7.5........ Conclusions.................................................................................................................. 78

7.5.1..... Financial Year 2010..................................................................................................... 78

7.5.2..... Financial Years 2006-2010.......................................................................................... 79

7.5.3..... Financial Years 2004-2005.......................................................................................... 79

8........... European Fisheries Fund............................................................................................... 80

9........... COHESION POLICY (Annexes 15-20)...................................................................... 81

9.1........ Reporting Discipline...................................................................................................... 81

9.2........ General Trends............................................................................................................. 82

9.2.1..... Yearly trends................................................................................................................ 82

9.2.2..... Detection of irregularities............................................................................................... 85

9.2.3..... Types of irregularity...................................................................................................... 86

9.2.4..... Suspected frauds.......................................................................................................... 86

9.3........ Specific analysis – Analysis by Programming Period: 2000-2006 and 2007-2013.......... 89

9.3.1..... Irregularities related to the programming period 2000-2006 – Structural Funds.............. 89

9.3.2..... Established fraud – Structural Funds.............................................................................. 95

9.3.3..... Irregularities related to the programming period 2000-2006 – Cohesion Fund................ 96

9.3.4..... Irregularities related to the programming period 2007-2013........................................... 98

9.4........ Conclusions.................................................................................................................. 99

9.4.1..... Structural Actions......................................................................................................... 99

9.4.2..... Programming Period 2000-2006................................................................................... 99

9.4.3..... Cohesion Fund........................................................................................................... 100

10......... Pre-accession funds (Annexes 21-22)......................................................................... 101

10.1...... Reporting discipline..................................................................................................... 102

10.2...... General Trends........................................................................................................... 103

10.2.1... Overall trend.............................................................................................................. 103

10.2.2... Irregularities affecting different funds............................................................................ 105

10.2.3... Amounts involved and impact on budget...................................................................... 106

10.2.4... Detection of irregularities............................................................................................. 106

10.2.5... Detected types of irregularities / modus operandi......................................................... 107

10.3...... Specific analysis.......................................................................................................... 107

10.3.1... Suspected and established fraud.................................................................................. 107

10.3.2... Cases of suspected fraud related to the programming period 2002-2006..................... 109

10.3.3... Fraud rates related to SAPARD – programming period 2002-2006............................ 109

10.3.4... Estimated Fraud Rate for the Programming Period 2002-2006 – all funds.................... 111

10.3.5... Recovery.................................................................................................................... 111

10.4...... Conclusions................................................................................................................ 112

11......... DIRECT EXPENDITURE – CENTRALISED DIRECT MANAGEMENT............... 114

11.1...... Methodology and scope............................................................................................. 114

11.2...... General analysis.......................................................................................................... 114

11.2.1... Financial amounts involved.......................................................................................... 114

11.2.2... Financial amounts involved by geographical area and Member State............................ 116

11.2.3... Method of detection................................................................................................... 119

11.2.4... Types of irregularity.................................................................................................... 121

11.3...... Specific analysis.......................................................................................................... 124

11.3.1... Irregularity versus Suspected Fraud............................................................................. 124

11.3.2... Time delay.................................................................................................................. 124

11.3.3... Trends........................................................................................................................ 125

11.4...... Recovery.................................................................................................................... 126

11.5...... Conclusions................................................................................................................ 127

ANNEXES.............................................................................................................................. 129

LIST OF ABBREVIATIONS

ABAC || Accrual Based Accounting

AFIS || Anti-Fraud Information System

CN || Combined Nomenclature

COCOLAF || Advisory Committee for the Coordination of Fraud Prevention

DG AGRI || Directorate General for Agriculture and Rural Development

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

DG MARE || Directorate General for Maritime Affairs and Fisheries

DG REGIO || Directorate General for Regional Policy

DG TAXUD || Directorate General for Taxation and Customs Union

EAFRD || European Agricultural Fund for Rural Development

EAGF || European Agricultural Guarantee Fund

EAGGF || European Agricultural Guidance and Guarantee Fund

EC || European Commission

EFF || European Fishery Fund

EP || European Parliament

ERDF || European Regional Development Fund

ESF || European Social Fund

EU || European Union

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

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

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

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

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

EUR || Euro

EURATOM || European Atomic Energy Community

FAL || Fraud Amount Level

FFL || Fraud Frequency Level

FIFG || Financial Instrument for Fishery Guidance

FinR || Financial Regulation

FrR || Fraud Rate

FY || Financial Year

GNI || Gross National Income

IMS || Irregularity Management System

IPA || Instrument for Pre-Accession

IrR || Irregularity Rate

OLAF || European Anti-Fraud Office

OWNRES || Own Resources

PAA || Pre-Accession Assistance

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

TFEU || Treaty on the Functioning of the European Union

TOR || Traditional Own Resources

VAT || Value Added Tax

WOMIS || Write-Off Management and Information System

PART I – INTRODUCTION AND METHODOLOGY

1. INTRODUCTION 1.1. Scope of the document

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

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

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

Being based on the notifications of cases of irregularities and suspected and established fraud, the paragraphs dedicated to recovery (with the exception of that related to Agriculture) are limited to the results of the actions undertaken by national authorities to recuperate amounts unduly paid to beneficiaries (mostly private economic operators). Moreover, as explained more in details in paragraph 3.1.2. from these analyses are excluded recoveries concerning irregularities whose amount does not exceed EUR 10 000. Chapter 7 (Agricultural expenditure) covers all recoveries.

In this respect, the present document differs in scope and results from other Commission publications dealing with financial corrections and recoveries[2] following the detection of irregularities, as these concern actions taken by the Commission in relation to Member States. This document, instead, reflects the amounts recovered by the national authorities and not by the Commission services.

The exception is Chapter 11 of this document, dedicated to the expenditure directly managed by the Commission services, which uses data extracted from the Commission Accrual Based Accounting (ABAC) system.

1.2. Structure of the document

The present document is divided in three parts.

The first introductory part is composed of five chapters which contain, respectively: the structure and scope of the document; a short description of the European Budget and its different “management” modes; a summary of the legal background for the reporting of irregularities; the definitions of the specific terms used throughout the document; and the methodology adopted for data capturing and analysing (the reporting system and the techniques adopted for the qualification of the irregularities).

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

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

2. THE EUROPEAN UNION BUDGET

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

2.1. Revenues

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

Own resources are of three kinds:

– Traditional own resources (TOR) — these mainly consist of duties that are charged on imports of products coming from a non-EU state.

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

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

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

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

Chart 2-1 shows how the four elements indicated above contribute to the EU budget, while Annex 1 provides a summary of financing by type of own resource and by Member State.

Chart 2‑1: Source of financial resource to the European Budget

2.2. Expenditure

The EU Budget for 2010 includes 6 headings of expenditure:

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

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

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

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

– Other expenditure includes the running costs for the European Institutions and some compensation to Bulgaria and Romania.

Chart 2-2 shows the distribution of the EU financial resources among the six different headings, while Annex 2 provides a more detailed overview of the 2010 budget.

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

2.3. Management of the Budget

According to article 317 of the TFUE, the Commission shall implement the budget. Council Regulation (EC, Euratom) No 1605/2002[3] of 25 June 2002 on the Financial Regulation (FinR)[4] applicable to the general budget of the EU indicates that the Commission implements the budget:

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

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

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

3. THE LEGAL FRAMEWORK FOR IRREGULARITIES REPORTING 3.1. The legal framework

European legislation provides for the protection of the Union’s financial interests in all areas of activity[5]. The FinR sets the principles and rules for the correct implementation of the budget. Member States are required to notify the European Commission (EC) of evidence of fraud and other irregularities. This need is particularly evident in those sectors of the EU budget where the main responsibility for management is with the Member States, namely, in the fields of Agriculture and Cohesion Policy (on the expenditure side) and Own Resources (on the revenue side). In these areas, Member States must inform the Commission of all irregularities involving more than EUR 10 000 of EU finances. This applies at all stages in the procedure for recovering monies unduly paid or not received.

Regulation No 1150/2000 specifies the requirement for own resources and Regulation No 1848/2006 for the agriculture sector. For the Cohesion Policy, which runs over multi-annual programmes the legal framework is more complex and is covered by Regulations Nos 1681/94[6] and 1831/94[7] for the programming periods until the 2000-2006 and by Regulation No 1828/2006[8] for the period 2007-2013[9]. Regulation No 498/2007 covers the European Fishery Fund (EFF).

The obligation to report irregularities in the area of pre-accession assistance is established in the Financing Agreements/Memoranda signed between the acceding countries, Candidate countries and the European Community/Union and is in accordance with the provisions of Commission Regulation (EC) 1681/1994[10] and 1828/2006[11]. This obligation is yet enhanced by the Commission decision granting conferral of management on extended decentralised basis (EDIS).

3.1.1. The reporting obligation

Member States shall report to the EC any irregularities which have been the subject of a primary administrative or judicial finding, within two months following the end of each quarter. Therefore, the reporting period is divided in four quarters the last of which has as deadline the end of February of the following year[12].

The first communication of a case of irregularity is also known as ‘Initial Communication’

The information to be submitted concerns, among others:

(1) The identification of the operation or budget line (for agriculture) affected by the irregularity;

(2) The detection method and the modus operandi;

(3) The financial impact of the irregularity;

(4) The natural and legal persons having committed the irregularity.

Member States can differ to a subsequent updating communication the integration of the information of which they do not dispose at the moment of the initial communication.

Updating communications provide relevant information about the administrative and judicial follow-up of the irregularities. In the areas of Cohesion and Pre-Accession information about financial follow-up has to be provided for irregularities related to previous programming periods (until 2000-2006 included)[13].

The reporting of irregularities shall happen by electronic means, using the modules provided by the EC (see Chapter 5 about the electronic reporting systems).

In certain sectors, namely Cohesion Policy and Pre-accession, financial information has to be expressed in Euro by countries which have not adopted it as their currency.

3.1.2. Derogations to the reporting obligation

As a general rule, where the irregularities relate to amounts of less than EUR 10 000 chargeable to the general budget of the EU, Member States shall not send the EC the irregularity communication, unless the Commission expressly requests it.

Further specific derogations to the reporting obligation are foreseen in the areas of Agriculture, Cohesion and Pre-accession policies. In particular, should not be reported:

– cases where the irregularity consists solely of the failure to partially or totally execute a (co-)financed operation owing to the bankruptcy of the final beneficiary or the final recipient; however, irregularities preceding a bankruptcy and cases of suspected fraud must be reported,

– cases brought to the attention of the administrative authority by the final beneficiary or the final recipient voluntarily and before detection by the relevant authority, whether before or after the payment of the public contribution,

– cases where the administrative authority finds a mistake regarding the eligibility of the financed expenditure and corrects the mistake prior to payment of the public contribution.

3.2. Implementation of the Reporting Obligation

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

The Commission works in close cooperation with the Member States to improve the notification system for irregularities, in particular to clarify the concepts of “fraud” and “irregularity”[14] and as a result of this, some measures of the possible economic impact of fraud in certain sectors have been made. However, for the reasons outlined above, the figures presented in the document should be interpreted with caution. It would be particularly inappropriate to draw simple conclusions about the geographical distribution of fraud or on the efficiency of the services which contribute to the protection of financial interests. The findings can not be considered as empirical evidence of the level of fraud and irregularity.

4. DEFINITIONS

For the purposes of this document, two sets of definitions are used. The first set refers to legal definitions, the second to specific indicators used throughout the different chapters.

4.1. Legal definitions 4.1.1. Irregularity

Irregularity: means any infringement of a provision of European law resulting from an act or omission by an economic operator which has, or would have, the effect of prejudicing the general budget of the European Union or budgets managed by it, either by reducing or losing revenue accruing from own resources collected directly on behalf of the Union, or by an unjustified item of expenditure[15].

4.1.2. Fraud

Fraud: affecting the European Communities' financial interests shall consist of[16]:

a) in respect of expenditure, any intentional act or omission relating to:

– the use or presentation of false, incorrect or incomplete statements or documents, which has as its effect the misappropriation or wrongful retention of funds from the general budget of the European Communities or budgets managed by, or on behalf of, the European Communities;

– non-disclosure of information in violation of a specific obligation, with the same effect;

– the misapplication of such funds for purposes other than those for which they were originally granted;

b) in respect of revenue, any intentional act or omission relating to:

– the use or presentation of false, incorrect or incomplete statements or documents, which has as its effect the illegal diminution of the resources of the general budget of the European Communities or budgets managed by, or on behalf of, the European Communities;

– non-disclosure of information in violation of a specific obligation, with the same effect;

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

National legislations contain several provisions that describe the conducts and the related penalties and sanctions. Some of these provisions are the result of the implementation of the PIF Convention into the national legal system.

The two definitions indicated above seem similar as both refer to “acts or omissions”. In fact, the concept of irregularity is much wider than that of fraud, which explicitly refers to “intentional” act or omission. In this respect, the concept of irregularity includes that of fraud, but refers also to a whole series of infringements of rules which do not imply a deliberate intent to violate or for which such intent is not clear (for instance a breach of rules due to the misinterpretation of certain provisions because of their complexity).

Therefore, the distinction between irregularities and fraud is that fraud is a criminal act that can only be determined by the outcome of judicial proceedings. As such, it is only when the judicial procedure has come to an end that the actual amount of fraud can be determined. While awaiting these results, the Commission works on the basis of the information supplied by Member States concerning cases of irregularities some of which, in the opinion of the reporting Member States, give rise to suspicions of fraud (as explained in paragraph 4.1.3). The Commission's statistical assessment of and ability to respond to, irregularities are influenced by the accuracy and timeliness of the notifications made by the Member States.

4.1.3. Suspected fraud

Suspected fraud[17]: means an irregularity giving rise to the initiation of administrative and/or judicial proceedings at national level in order to establish the presence of intentional behaviour, in particular fraud, such as is referred to in Article 1(1), point (a), of the PIF Convention.

In their communications of irregularity to the Commission, Member States have been requested to indicate whether a reported irregularity can be regarded as 'suspected fraud'. This notion was introduced in order to provide some data for statistical purposes and to avoid the necessity of waiting until the end of criminal procedures for a final indictment.

4.2. Indicators 4.2.1. Irregularity and Fraud Rates

The Irregularity Rate (IrR) is calculated using Equation 4-1 below:

Equation 4‑1: Irregularity Rate

The Fraud Rate (FrR) is calculated using Equation 4-2 below:

Equation 4‑2: Fraud Rate

The IrR and FrR can be calculated by financial year (as in the case of the Agriculture sector – see Chapter 7) or on the entire Programming Period (as in the case of Structural Funds – see Chapter 9) and by Member State. The FrR is calculated using amounts linked to cases of suspected and established fraud[18].

4.2.2. Fraud Frequency and Fraud Amounts Levels

The Fraud Frequency Level (FFL) represents the percentage of cases qualified as suspected frauds on the total number of reported irregularities and is calculated using Equation 4-3 below.

Equation 4‑3: Fraud Frequency Level

The Fraud Amounts Level (FAL) represents the percentage of financial amounts involved in cases qualified as suspected frauds on the total reported financial amounts affected by irregularities and it is calculated using Equation 4-4 below.

Equation 4‑4: Fraud Amounts Level

FFL and FAL can be calculated by financial year (as in the case of the Agriculture sector – see Chapter 7) or on an entire Programming Period (as in the case of Structural Funds – see Chapter 9) and by Member State.

5. METHODOLOGY 5.1. Data Capturing – The irregularity reporting systems

Two main systems are in place for the reporting of irregularities to the Commission: Own Resources (OWNRES) managed by the Directorate General for Budget and the Irregularity Management System (IMS) managed by the European Anti-Fraud Office (OLAF). For the chapter dedicated to ‘Direct expenditure’, data come from a specific functionality of the ABAC (Accrual Based Accounting) system of the Commission.

5.1.1. OWNRES

Under Article 6(5) of Regulation No 1150/2000, Member States are required to communicate to the Commission, via the OWNRES system, cases of fraud and irregularity, if the TOR amount exceeds EUR 10 000.

5.1.2. Irregularity Management System (IMS) 5.1.2.1. The modules

The Irregularity Management System (IMS) is an application of the Anti-Fraud Information System (AFIS), developed and maintained by OLAF for a secure exchange of information between Member States and the Commission.

IMS is a complex application divided in several modules which enable Member States to report cases of irregularities and (suspected) fraud under the different sectoral legislations mentioned in chapter 3. The modules are named after the corresponding Regulation, with the exception of the two modules related to Pre-Accession Assistance.

Figure 5-1 summarises the architecture of IMS and distinguishes between modules under development (framed by a dotted line) and modules currently operational (framed by a continuous line).

Figure 5‑1: IMS architecture

5.1.2.2. The national structures and users

According to their competencies and responsibilities national authorities have access to the module(s) which is(are) relevant for them. IMS flexibility allows a cascading system to be set up: national organisations can be arranged in a hierarchical structure with different levels of responsibility, in which the superior level approves the communication prepared by the inferior and forwards it to the next level or to OLAF. Within each organisation, users can receive different roles such as creator (creates the communication of irregularity), manager (validates it and forwards it to the next level) and observer (read-only access). 584 national organisations and 3 572 users are set up in IMS. Some of them may be responsible for more than 1 module.

Figure 5-2 provides an example of a national structure, showing the complexity that the system allows and supports.

Figure 5‑2: Example of a national reporting structure

IMS does not exclusively support the needs of the organisations to structure the reporting task, but, being a web based application that can be accessed directly via internet, also introduces an extended accessibility to the system. This has led to an enormous increase in the number of users if compared to the previous electronic reporting system (from less than 200 to 3 572 users).

Table 5-1 summarises the number of organisations and users per Member State and per module[19].

Table 5‑1: number of organisations and users per Member State and module

5.1.2.3. Data input and data quality

The different modules of IMS offer the users the possibility of submitting the information requested by the sectoral regulations in a structured manner. The different fields are grouped in pages according to “subjects” and users are assisted through the possibility of choosing from pre-defined selection lists.

Communications of irregularity can also be imported into the system using excel or xml files structured according to specific templates.

Information considered to be essential are treated as mandatory, meaning that a communication cannot be successfully finalised and transmitted without it. Other ‘business rules’ provide warnings or produce errors if the user does not fill correctly the requested data.

Data quality checks are also provided by the different levels of the reporting structure and by OLAF.

The ‘Initial Communication’ and its ‘Updating Communication(s)’ form a ‘Case’.

5.1.2.4. Impact of IMS on irregularity reporting

The introduction and successful implementation of IMS has produced a number of consequences on the reporting behaviour and practise of Member States. Those countries which have adopted the system have

(1) rationalised the distribution of the workload related to the reporting obligation: in the past, level 2 or 3 was filling a paper form and transmitting it to level 1, which had the task to perform a quality check and to submit the form to the Commission, on paper or electronically. If the communication was forwarded on paper, someone in OLAF was keying in the information into the irregularities database. This duplication of tasks was at the origin of several clerical mistakes;

(2) accelerated the reporting process. The decentralisation of the reporting task through the same system allows more users to prepare, at the same time, a greater number of communications. The “superior” levels are freed from the “filling” of communications and can, therefore, concentrate on data quality and process the irregularities in a faster way. This acceleration is possibly the source for an increased number of reported irregularities in the first years of implementation of the IMS;

(3) improved the completeness and overall quality of the communications, thanks to the mandatory fields and the “consistency rules” foreseen by the system.

5.1.3. ABAC – Recovery context

The ABAC system is a transversal, transactional information system allowing for the execution and monitoring of all budgetary and accounting operations by the Commission. The system was developed by the Commission to facilitate compliance with the requirements of the Financial Regulation and its implementing rules.

One of the functionalities of the ABAC system is the ‘Recovery Context’, which gathers detailed information on recovery orders issued by the Commission services and registered in ABAC. The information introduced into the recovery context relates, amongst others, to the qualification of the recovery order: financial officers have to indicate for each recovery order whether it relates to an error, an irregularity or a suspected fraud that has been identified in the implementation of a grant agreement or contract. In case the recovery order is qualified as 'suspected fraud', OLAF has to be notified. For each recovery order, information is given on the method of detection as well as the type of irregularity or suspected fraud that constitutes the basis for the recovery.

The recovery context is a relatively new functionality within ABAC. The collection of data from the Commission services only started recently and the current data available in ABAC refer to recovery orders issued since 2008. This first exercise conducted in 2008 revealed a number of practical problems, which are related to different interpretations throughout the Commission of definitions used in ABAC; the omission of certain information in the 'Recovery Context' and the link of the information with other data in ABAC. The Commission has tried to diminish the impact of these shortcomings to provide more accurate analysis of the irregularities in expenditures managed directly by the Commission. Nevertheless, the limitations of the data have not been removed completely and they might still influence the analysis.

5.2. Data analysis – cases of irregularity and (suspected) fraud

The analyses presented in parts II and III of the present document are based on the cases of irregularities and (suspected) fraud gathered through the tools described in paragraph 5.1. The extent to which those systems are implemented and correctly used influences the accuracy and completeness of the analytical results.

Each chapter devotes a specific attention to the analysis cases of suspected and established fraud detected and reported by national authorities and Commission services. For this reason, the distinction between simple irregularities and instances of possible fraud is one of the bases for a correct interpretation of the data.

As already indicated in paragraph 4.1.3, in their communications of irregularity to the Commission, Member States have been requested to indicate whether a reported irregularity can be regarded as 'suspected fraud'. This action is performed in IMS by filling a specific field (which is mandatory in all modules except module 1848) which allows classifying any case under three possible categories: (a) irregularity; (b) suspected fraud; (c) established fraud. Therefore, all Member States having implemented IMS specify the requested information.

The analysis of this information, however, has revealed that a number of inconsistencies are still present. Namely, the classification provided by national authorities can be contradictory with other data given in the same communication, for instance the description of the types of irregularities committed and the judicial follow-up undertaken.

In particular, the inconsistencies appear evident in the presence of the following information:

(1) the case is classified as “irregularity”, but it is also indicated that penal proceedings have been initiated;

(2) the case is classified as “irregularity”, but one or more of the modus operandi described in Table 5-2 are indicated.

Table 5‑2: List of modus operandi conflicting with the classification ‘irregularity’

For the purposes of the analyses conducted in Chapters 8 and 9 of this document, in presence of one of the two conditions mentioned above, the case has been considered as a “suspected fraud” even in absence of such classification from the national authorities.

PART II - REVENUES

6. TRADITIONAL OWN RESOURCES (ANNEXES 3-13) 6.1. Management of Traditional Own Resources (TOR)

The Union must have access to Traditional Own Resources (‘TOR’)[20] under the best possible conditions. In conformity with Regulation (EC, EURATOM) No 1150/2000[21] Member States are responsible for making TOR available to the Commission, within the deadlines set, that they have established. Established amounts of customs or agricultural duties, that have been recovered, and debts, that are guaranteed and not under appeal, are to be made available via the A-account. However, if TOR have been established by a Member State but not yet recovered and if no security has been provided or the secured amount has been disputed, Member States may enter these TOR amounts in the B-account. These amounts of TOR are not made available until actually recovered. Most fraud and irregularity cases relate to B-account items.

6.1.1. Monitoring of establishment and recovery of TOR

In order to get the right picture of Member States’ TOR recovery activity, it is important to keep in mind that over 97% of all amounts of TOR established are subsequently recovered without any particular problem. These amounts are entered in the A-account and made available to the Commission. This covers most of the ‘normal’ import flows where release for free circulation gives rise to a customs debt. The remaining exceptional items are entered in the B-account. This proportion should be borne in mind, when evaluating Member States’ recovery activity.

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

The following three methods are used:

(1) Overall monitoring of recovery of TOR via the write-off procedure;

(2) Regular inspection in Member States of the establishment and recovery of TOR and B-account entries;

(3) Specific monitoring (in close cooperation with OLAF, DG TAXUD and DG AGRI) of Member States’ follow-up of recovery in individual cases, which have a significant financial impact and usually involve Mutual Administrative Assistance.

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

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

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

(1) for reasons of force majeure; or

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

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

An amendment to Regulation No 1150/2000[22] introduced certain timeframes within which a Member State has to provide the Commission with information on amounts of established entitlements of TOR declared or deemed irrecoverable where these exceed EUR 50 000. Consequently, in years 2008 and 2009 the number of Member States' write-off reports increased significantly. A new IT application called WOMIS[23] was introduced in January 2010 to support Member States and the Commission in managing write-off reports. Member States submit their requests to be released from the obligation to make the TOR available directly via WOMIS. Experience in the first year showed that it cuts delays in the process and permits improved up-to-date and easy-to-obtain management information. In 2012 a WOMIS version 2.0 will be released.

In 2010 116 write-off reports amounting to EUR 42 million were communicated via WOMIS to the Commission by 13 Member States. The following table shows that thereof 53 cases have been processed by the Commission in 2010 with the following results:

Table OR1: Write-off reports treated in 2010

MS || Cases[24] || Total amount || Acceptance || Refusal || Additional information request

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

AT || 12 || 1 730 716 || 2 || 254 706 || || || 10 || 1 476 010

CZ || 1 || 73 305 || || || || || 1 || 73 305

DE || 11 || 2 091 599 || 6 || 1 453 929 || || || 5 || 637 670

ES || 6 || 323 853 || 2 || 65 487 || || || 4 || 258 366,42

FI || 6 || 541 637 || 3 || 259 330 || || || ||

UK || 6 || 8 726 983 || 3 || 875 305 || || || 2 || 7 696 147

HU || 3 || 822 619 || || || 1 || 267 224 || 2 || 555 395

IT || 7 || 1 337 402 || 2 || 286 651 || || || 5 || 1 050 751

NL || 1 || 1 114 350 || || || || || 1 || 1 114 350

Total || 53 || 16 762 464 || 18 || 3 195 408 || 1 || 267 224 || 30 || 12 861 994

In addition, 294 cases which had been communicated before 2010 to the Commission have been processed in 2010 with the following results:

OR: TABLE 2

MS || Cases[25] || Total amount || Acceptance || Refusal || Additional information request

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

AT || 3 || 2 217 810 || 2 || 2 153 780 || 1 || 64 030 || ||

BE || 10 || 1 691 376 || 1 || 168 024 || 2 || 395 068 || 7 || 1 128 284

DE || 69 || 28 897 230 || 39 || 7 792 226 || 6 || 700 612 || 24 || 20 404 392

DK || 17 || 3 952 012 || 14 || 2 355 405 || 2 || 1 484 152 || 1 || 112 455

ES || 94 || 25 426 940 || 31 || 4 695 999 || 19 || 5 588 538 || 44 || 15 142 403

FI || 1 || 226 820 || || || || || 1 || 226 820

FR || 1 || 48 568 || 1 || 48 568 || || || ||

IT || 47 || 29 462 972 || 5 || 1 665 657 || 34 || 12 669 134 || 5 || 14 803 910

LV || 1 || 109 969 || || || || || 1 || 109 969

NL || 44 || 28 356 691 || 18 || 2 951 337 || 7 || 916 474 || 18 || 24 436 819

PT || 2 || 1 731 625 || || || 2 || 1 731 625 || ||

SE || 3 || 537 402 || 3 || 537 402 || || || ||

UK || 2 || 234 666 || 1 || 53 444 || || || 1 || 181 222

Total || 294 || 122 894 081 || 115 || 22 421 842 || 73 || 23 549 633 || 102 || 76 564 275

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

6.1.3. Particular cases of Member State failure to recover TOR

If TOR are not established because of an administrative error by a Member State, the Commission applies the principle of financial liability[26]. In 2010 Member States have been held financially liable for over EUR 37 million and new cases are being given appropriate follow-up.

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

6.2. Reporting discipline

Under Article 6(5) of Regulation No 1150/2000, Member States are required to communicate to the Commission, via the OWNRES system[27], cases of fraud and irregularity, if the TOR amount exceeds EUR 10 000. The requirement to report such cases is designed to inform the Budgetary Authority of the state of play relating to fraud and irregularities in TOR. This political dimension is a clear signal to all stakeholders of the importance of prompt, accurate and complete reporting. The OWNRES database is a key tool for obtaining data for global analyses of fraud and irregularities, and presents valuable information to the Budgetary Authority.

Because all TOR amounts exceeding EUR 10 000 in the B-account normally represent an irregularity (fraud included) by definition, therefore the match between the two - from the standpoint of the B-account - should be 100%[28]. This match is checked during the regular inspections in the Member States. New analysis showed some unexplained discrepancies. The Commission will therefore start an enquiry to the Member States to clarify the situation.

6.2.1. Year of discovery versus year reported

Cases should be included in OWNRES upon the initial discovery of the irregularity or fraud case. As a result the year of the customs operation and the year of discovery of the irregularity or fraud can diverge. Member States are continually adding new cases and updating existing items. So the information generated by OWNRES represents the situation on the date of the query. For instance, the number of irregularities and frauds concerning 2009 in last year’s report was 4 684 cases, whereas the number of cases now shown for 2009 is 5 204 cases[29]. This continuing development is inherent to the system.

6.3. General trends

The number of cases communicated to OWNRES for 2010 is currently 9% lower in comparison with 2009 (from 5 204 to 4 744). The amount of TOR involved is however 10% bigger (from EUR 357 million to EUR 393 million)[30].

The number of communications from the ten new Member States showed continued growth since their accession in 2004 until 2007. From 2007 to 2009 the communicated cases remained stable. 2010 shows 17% less communicated cases compared with 2009 although the amount of TOR increased by 5% from 2009 to 2010.

The number of communications from Bulgaria and Romania increased since their accession. In 2007 both countries together reported 52 cases, whereas in 2010 both countries reported 151 cases.

The OWNRES database now contains 62 743 cases in total (1989-2010) and shows an increase of 9% during 2010[31]. Significant changes in the number of registrations in 2010 compared with 2009 can be seen for Romania (+71%), Bulgaria (+ 47%), Malta (- 71%), Estonia (- 55%), Latvia (-37%) and Slovakia (-36%). Significant changes of amounts can be seen in Spain (+169%), Denmark (+158%), Czech Republic (+119%) and Malta (-72 %)[32].

From 2006 to 2009 the number of belatedly discharged transit operations decreased continually. Compared to 2009 the number of belatedly discharged transit operations increased.[33] In the case of transit, practice shows that up to 90% of the initially established debts are ultimately cancelled, because of proof of regular discharge after all.

6.3.1. Types of irregularity and fraud

A breakdown of frauds and irregularities by customs procedure and by mechanism type confirms that most cases of irregularity or fraud relate to the procedure of release for free circulation (81% of established amounts[34]). False declarations (false description, incorrect value, origin and preferential arrangements) and formal shortcomings (failure to fulfil obligations or commitments) are the mechanisms most frequently mentioned, but also smuggling is highly placed.

The goods (defined by the first two numbers of the CN code[35]) the most affected by fraud and irregularities in 2010, as in previous years, are TVs/monitors etc. (CN 85). Furthermore, Machines (CN 84), Sugar (CN 17)[36] and Vegetables (CN 08) increased in importance when compared to 2009. Organic chemicals (CN 29) and Food (CN 16) decreased in importance and these goods were not listed anymore in 2010 in the TOP 10 Chapter Heading list.[37]

Chart OR1: Fraud and irregularities breakdown by good in 2009 (in million EUR)[38]

Evaluation of the origin of goods subject to fraud and irregularity[39] reveals that, just as in 2009, goods originating from China and the USA remain very much affected. The number of cases originating from Latin America in particular from Ecuador, Brazil, and El Salvador has increased. Spain communicated 4 cases of fraud involving EUR 28 million in relation to sugar levies established linked to the framework of the common organisation of the sugar market. Also goods originating from Ceuta were importantly involved in the fraud and irregularities detected during 2010[40]. Japan has decreased in importance as country of origin in comparison with the last year and goods from South Korea have been more affected.

6.3.2. TOR and cigarettes

In 2010 there were 190 cases registered of seized and confiscated cigarettes (CN code 24 02 20 90) involving estimated TOR of around EUR 23.5 million. In 2009 the number of registered cases concerning seized and confiscated goods was 217, totalling around EUR 26 million. The decrease of the number of cases is related to the EU-15, of which the United Kingdom shows the most significant decrease as regards the estimated amount of TOR in euro. As regards the EU-12, the established amount of seized and confiscated cigarettes increased significantly in Bulgaria and it decreased considerably in Romania.

6.3.3. Data main sectors TOR

See Annexes 3-10.

6.4. Detection of fraud and irregularity[41]

Of all the cases registered in OWNRES in 2010 19% (883 out of 4 744 registered cases) are categorised as fraud, which is the same proportion as in 2008 and 2009[42]. However, like in previous years, the differences between Member States are relatively large. In 2010 most of the Member States categorised between 10-60% of all cases as fraud. However, nine Member States categorised less than 10%[43] of the cases as fraud, whereas four Member States registered more than 60%[44] of the cases as fraud. These figures demonstrate that the categorisation of irregularity and fraud in OWNRES may still not be fully reliable because of differences in the interpretation of the definition of fraud and irregularities.

According to OWNRES the moment of discovery is an indicator for classifying a case as fraud, since primary inspections more often result in classifying cases as fraud than post-clearance inspections.

OWNRES is not a fully reliable source of data on fraud alone, isolated from irregularity. This is because (until a court judgment is obtained) the distinction between fraud and irregularity is usually made on subjective grounds, and, these grounds vary between national administrations.

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

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

A range of detection methods can reveal irregularity or fraud. Judging from the 2010 data national post-clearance inspections and primary national inspections (either physical inspections or inspections of documents — the latter category featuring most frequently) are detection methods that have revealed most cases. Post-clearance inspections feature in 44% of the cases discovered, whereas primary national inspections cover 30%. All in all, the vast majority of cases (74%) were detected in 2010 by means of either primary national inspections or post-clearance control audits.

It is clear that the shift from primary to post-clearance inspections, which could already be seen in previous years, continued in 2010. The relative importance of inspections by anti-fraud services was relatively stable with 8% in 2009 and 7% in 2010. Since the final results of such inspections take more time than regular inspections, a (slight) increase in the percentage for 2010 may be expected in future registrations.

CHART OR 2: Method of detection 2008-2010

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

The map below illustrates by which methods OWNRES cases - in amounts - have been discovered by the Member States[45] in 2010. For reasons of presentation the following methods are included in the term "ex-post controls": audit of the accounts, Union inspections, inspections by anti-fraud services, inspection visits, national post-clearance audits and tax audits. In EUR – 27 around 18% of all cases – in amounts – have been discovered by primary inspections, whereas 78% of all cases – in amounts – have been detected via "ex-post controls". In the following six Member States more than 40 % of all cases – in amounts – have been detected by primary inspections: Finland (50%), France (50%), Malta (64%), Poland (52%), Slovenia (40%) and Bulgaria (69%). More than 90% of all cases – in amounts – have been detected by "ex-post controls" in Austria (95%), Belgium (95%), Denmark (92%), United Kingdom (95%), Cyprus (96%), Hungary (92%) and Slovakia (100 %). In four Member States more than 10 % of all cases – in amounts- have been detected by voluntary admission.[46]

MAP OR 1: Visualising the method of detection

6.4.3. Customs procedures affected to fraud and irregularity in 2010

In 2010, the majority of established amounts in OWNRES (81%) in EU-27 are related to the customs procedure "release for free circulation".[47] 9% of all established amounts of OWNRES cases in 2010 involve the transit procedures (3%), the customs warehousing (3%) and the inward processing (3%). Between the Member States are however significant differences. In Bulgaria 64 % of all established amounts of OWNRES cases relate to the transit procedure[48], whereas 36 % relate to the release for free circulation. Furthermore, transit was much affected, in amounts, in Slovenia (35%), Poland (25%) and Belgium (13%). In comparison to the other Member States, the Netherlands detected during transit procedures OWNRES cases with the highest total (EUR 2 950 732). Furthermore, Belgium (EUR 1 663 005) and Germany (EUR 1 303 854) are ranked high.

The amounts established of detected cases under the customs warehousing were relatively high in the following Member States: Belgium (19%), Finland (8%), Portugal (25%) and Sweden (12%). Germany established in comparison to the other Member States most amounts (EUR 5 956 757) related to the customs warehousing Belgium ranks second with an established sum of EUR 2 450 644 detected under the customs warehousing. From the EU-12 only the Czech Republic and Lithuania reported cases detected under the customs warehousing. Italy reported mainly detection of cigarette smuggling under this procedure. Austria, Greece and Ireland did not report any cases. Established amounts of fraud and irregularities related to the inward processing were mainly reported by the United Kingdom (20%), Sweden (11%), Lithuania (8%), and Italy (7%). The United Kingdom was also top ranked as regards established amounts (EUR 7 347 871) under the inward processing. From the EU-12 only Poland and Lithuania reported cases detected under the inward processing. Austria, Belgium, Ireland, the Netherlands and Portugal neither report cases of fraud and irregularity in relation to this procedure.

Finally, 10% of all established amounts in EU-27 fall under the category "Other". This category combines, among others, the following procedures or treatments: Processing under customs control, temporary admission, outward processing and standard exchange system, exportation, free zone or free warehousing, re-exportation, destruction and abandonment to the Exchequer.

MAP OR 2: visualising the customs procedures affected to fraud and irregularity in 2010

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

As indicated before over 97% of all amounts of TOR established are recovered without any particular problem and made available to the Commission via the A-account. For 2010 around EUR 20.9 billion TOR (gross) have been collected by the Member States and thereafter made available to the EU budget after deduction of 25% collection costs. These amounts relate mainly to ‘normal’ import flows where goods are declared for a customs procedure (e.g. release for free circulation) giving rise to a customs debt. In comparison, according to the OWNRES communications, around EUR 418 million have been established or estimated by the Member States in connection to detected cases of fraud and irregularities where the amount at stake exceeds EUR 10 000. Usually, this report refers to established amounts of TOR reported in OWNRES with the exception of information about seized and confiscated cigarettes (Annex 7). However in this paragraph, for the purpose of this comparison, also estimated amounts in OWNRES have been taken into account and added to the established amounts. This is to take also into account the several cases of fraud and irregularities reported by Member States where the unlawfully imported goods had been seized and confiscated by the customs authorities and therefore, in accordance with the customs rules, no customs duties for these goods had been established.

For EU-27 the established and estimated amounts reported in OWNRES represent 2.00% of the collected TOR (gross).[49] A percentage of 2.00% reflects that out of each EUR 100 of TOR (gross) collected an amount of irregularity or fraud is registered in OWNRES of EUR 2.00. Within the Member States there are differences. In 12 Member States the percentage is equal or above the average of 2.00%. The highest percentage can be seen in Romania with 7.13%. In 9 Member States the percentage is between 1.00 % (half the average) and the average of 2.00%. In 5 Member States the percentage is equal or below 1.00%. Luxembourg did not report any OWNRES cases in 2010. For EU-15 the established and estimated amounts reported in OWNRES represent 1.94% of the collected TOR, whereas in EU-12 the established and estimated amounts reported in OWNRES represent 2.93% of the collected TOR.

On the basis of the information in OWNRES it is not possible to provide an explanation for the variations between the Member States. It should also be noted that the figures can vary a lot from year to year. Especially in Member States with a smaller share of TOR collection, individual bigger fraud cases detected in a certain year may affect importantly the annual percentage. Several factors influence this percentage, e.g. the type of traffic and trade, the level of compliance of the economic operators, and, the location of a Member State. Under these variable factors the percentage is also affected on the way how the Member State's customs control strategy is set up to target risky imports and to detect TOR related fraud and irregularity.

In recent years the Commission has in its TOR inspections put a special emphasis on Member States' customs control strategies and is monitoring closely Member States' action in relation to the observations made during its inspections[50].

MAP OR 3: visualising the percentage of established or estimated amounts in OWNRES to collected TOR

6.5. Recovery

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

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

OWNRES shows that approximately 45% of the initially established amount is corrected (cancelled). For closed cases related to transit this may reach up to 90%. As a consequence, Belgium and the Netherlands show more corrections than average, because establishments related to transit occur more frequently. This is due to the ports of Antwerp and Rotterdam.

6.5.1. Recovery rate

Differences in recovery results arise from factors such as the type of fraud or irregularity or the type of debtor involved. The recovery rate for all years (1989-2010) is 47%[51].

The overall recovery rate for 2009 recorded in last year’s report was 44%, although it has since then climbed to 50%. At present the recovery rate for 2010 is 46%[52]. In other words, of every EUR 10 000 of duties established in 2010 in OWNRES, approximately EUR 4 600 is actually paid. Because recovery is ongoing, the recovery rate is constantly changing (payments are obtained, new establishments are made and corrections are taken into account).

There are big differences of the above short term recovery rate within the Member States. The highest recovery rate was in Sweden with 88%, whereas in Malta the recovery rate was zero %. In six Member States was the recovery rate above 70 %.[53] As explained before, Member States' recocery action is closely monitored by the Commission and they are financially liable for the losses of TOR occurred because of the weaknesses observed in their recovery action.

6.6. Conclusions

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

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

(2) The goods involved in irregularities and frauds demanding Member States’ attention are very diverse. TVs, machines and monitors keep their relevance in 2010 and are like in previous years the most important goods involved in registered cases of irregularity or fraud. Vegetables and sugar gained significance. The origin of the goods concerned is likewise varied, although some countries remain continuously at the top of the rankings (such as China and the USA). Some Central and South American countries (e.g. Brazil, Ecuador and Mexico) were of more importance in 2010.

(3) The established amounts of TOR at stake in irregularity and fraud are, according to OWNRES, up to EUR 393 million in 2010. Of the amounts initially established, approximately 44% is later cancelled and in the case of establishments related to transit up to 90% of the established amount may be cancelled later. Payment is then required only for the part which is not cancelled. The initial recovery figures for 2010 are comparable to those of previous years.

(4) The methods of detection vary between Member States, however, in 2010 post-clearance inspections and primary controls (during the clearance) are creating 75 % of all OWNRES cases. Thereof, the shift from primary to post-clearance inspections continued in 2010.

(5) The customs procedure release for free circulation was like in the previous years the most affected to fraud and irregularities. 81% of all amounts reported in OWNRES have been detected under the release for free circulation. However, there are differences between the Member States. In some Member States most cases have been detected during the transit procedure, customs warehousing, inward processing, free zone or destruction (of cigarettes).

(6) For EU-27 the established and estimated amounts in OWNRES represent 2.00% of the collected TOR (before deduction of 25% collection costs) for 2010. The percentage varies between the Member States and between the years.

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

PART III - EXPENDITURE

7. AGRICULTURAL EXPENDITURE (Annexes 13-14) 7.1. Introduction

The Common Agricultural Policy (CAP) has been one of the most important common policies over the years, as a large part[54] of the European Union's (EU) budget is spent in the agricultural sector.

The agricultural expenditure is financed by 2 funds:

· EAGF

· EAFRD

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

The EU-budget for the year 2010 was about EUR 123 billion. More than EUR 53 billion was spent in the agricultural sector, of which EAFRD expenditure accounts for about EUR 10.5 billion. Annex 13A provides a detailed overview of the agricultural expenditure concerning the financial years 2006-2010.

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

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

Commission Regulation (EC) No 1848/2006 obliges Member States to report irregularities to OLAF. Member States report irregularities via Module 1848.

Module 1848 was introduced in 2008 and was directly used by all Member States. It is a web based application that can be accessed via internet. Access via internet led to an enormous increase of the number of users of Module 1848. The total number of users increased from less than 50 in 2008 to more than 1,000 in 2010.

The data provided by Member States via Module 1848 is used for performing risk analysis as described in article 10 of Regulation No 1848/2006[55] and to inform the Advisory Committee for the Coordination of Fraud Prevention (COCOLAF) as described in article 9 of Regulation No 1848/2006[56].

The agricultural section of this report contains three parts: financial year 2010, financial years 2006-2010 and financial years 2004-2005. The first part contains an overview of new cases reported during 2010, Member States compliance with the reporting obligations and the recovery of unduly paid amounts. In the second part are the trends and developments in the agricultural sector described on basis of the data concerning the financial years 2006-2010. The third part contains definitive figures, based on the analysis of the financial years 2004-2005 which years, from an irregularity reporting point of view, are considered to be finalised.

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

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

2. Audit plans and programmes are still running for the period 2006-2010. This means that cases of irregularities still can be detected and reported, which could have a direct impact on the figures. The figures concerning the financial years 2006-2010, therefore, need to be seen as a half-time-result[57].

3. Not all irregularities have to be reported. Member States must only inform OLAF of irregularities involving more than EUR 10 000. It is also good to bear in mind that 87% of the number of payments, representing 21% of the total expenditure, concern amounts below EUR 10 000 which implies that for these payments normally no irregularities will be reported[58].

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

7.2. Financial Year 2010 7.2.1. Financial Year 2010: cases reported

Table AG1 provides an overview per Member State of the number of cases reported, the amounts affected and the classification of the irregularities into "irregularity", "suspected fraud" or "established fraud"[59].

Table AG1: cases reported during Financial Year 2010

Member States reported 1 825 new cases of irregularities with a total amount affected of about EUR 131 million. These cases concern expenditures for the financial years 1990-2010. Like last year, Spain reported the highest number of cases (413) as Italy reported again the highest amounts affected (EUR 39.7 million).

The number of cases that have been classified as "suspected fraud" or "established fraud" is rather high: 414. This is 23% of the total number of cases reported and 47% of the total amounts affected. The "fraud cases" are mainly reported by Italy and young Member States, especially Bulgaria, Hungary, Poland and Slovenia.

France reported "no fraud" which is remarkable now France spends approximately 20% of the total agricultural budget.

Eye-catching are the high amounts affected by irregularities reported by Hungary. The Hungarian authorities informed the Commission that the high irregularity rate is caused by a special situation in the Hungarian cereal market during the financial years 2006-2010[60].

Only five cases were not classified as irregularity, suspected or established fraud. This is less than 1% and a big step forward in comparison with previous years.

7.2.2. Financial Year 2010: reporting discipline

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

Table AG2 provides an overview of the compliance rate per reporting obligation. Member States are ranked in order of their overall 2010 compliance rate, which can be found in the fourth column of the right hand side.

Table AG2: compliance per Member State

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

In 2010, the overall compliance rate[61] decreased from 95% to 90%. 15 Member States have a compliance rate above 90%. These Member States stabilized their compliance rate during 2010 or even improved it. 11 Member States had a downfall. Especially the downfall of the Dutch and Finnish compliance rate is remarkable. The Netherlands went down from 87% to 68% as Finland went down from 70% to 59%. For both count that extra attention should be given to timely reporting, the reporting of the measures affected and the sanctions imposed. For Finland counts that also the reporting of personal data should get more attention. Almost no information is provided concerning the persons that committed the irregularities. Poland scores also low on the reporting of personal data. The Polish compliance rate for the reporting of personal data is only 26%.

Chart AG3: communications reported in 2010 by quarter

As mentioned, timely reporting is still a problem for vast majority of Member States. Striking is that some Member States submit at the beginning of the year a small number of communications while at the end of the year a relatively high number is submitted. This could indicate that communications are not submitted at the earliest possible moment but that they are collected, processed and sent in one go at the end of the reporting year with the consequence of late reporting. Chart AG3 provides an overview of this end-year-rush. It gives an overview of the increase of the number of communications sent during 2010. The total numbers at the bottom of the table demonstrate best how the number of communications increases towards the end of the year. 848 communications were sent during the first quarter of 2010. This number increased during the second and third quarter to approximately 1 770. During the last quarter, Member States submitted more than 2,700 communications which is an increase of more than 220% in comparison to the number of communications sent in the first quarter.

7.2.3. Financial Year 2010: financial follow up of irregularity cases [62]

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

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

In the year 2010, the 50/50 mechanism was applied by the financial clearance decision for the financial year 2009[63] on all pending non-recovered cases dating from 2005 or 2001 (cases that were four or eight years old respectively). EUR 22.8 million was charged to the Member States in this way and EUR 20.3 million was borne by the EU budget for reasons of irrecoverability (out of the EUR 63.8 million declared irrecoverable by the Member States, EUR 43.5 EUR million had already been cleared under the 50/50 and, therefore, the loss is shared between the EU and the Member States). A further EUR 11.9 million has been charged to the Member States by subsequent decisions that cleared[64] the accounts for financial year 2009 of those paying agencies that were disjoined in April 2010.

During financial year 2010 Member States recovered EUR 175.2 million and the outstanding amount still to be recovered from the beneficiaries at the end of that financial year was EUR 1 193.3 million. Table AG4 provides an overview of the recovered, irrecoverable and outstanding amounts at the level of beneficiaries at the end of financial year 2010.

Table AG4: financial information on recovery cases

The financial consequences of non recovery for cases dating from 2006 or 2002 was determined in accordance with the 50/50 rule mentioned above by charging EUR 27.8 million to the Member States concerned[65] and a further EUR 0.6 million will be charged subsequently. Moreover, EUR 29.2 million was borne by the EU budget for cases reported irrecoverable during financial year 2010.

Due the application of the 50/50 mechanism since its introduction in 2006 important non-recovered sums have already been charged to the Member States for EAGF expenditure (EUR 446 million). Consequently, out of the EUR 1 193.3 million to be recovered from the final beneficiaries at the end of financial year 2010 the amount outstanding towards the EU budget is limited to EUR 888.8 million. As regards the recovery of undue payments financed by the EAFRD, it has to be noted that the 50/50 rule will only commence being applied after the closure of the rural development programmes.

The new clearance mechanism (50/50 rule) referred to above provides a strong incentive for Member States to recover undue payments from the beneficiaries as quickly as possible. As a result, by the end of financial year 2010, 42% of the new EAGF debts from 2007 and thereafter had already been recovered, which is a significant improvement compared to the past (see table AG5).

Table AG5: recoveries for cases detected since 2007

During the years 2008-2010 the Commission was auditing the correct application of the new clearance mechanism through 15 on the spot controls covering 16 paying agencies in 12 Member States covering 89% of the total outstanding debt at the end of financial year 2010. In general, the Member States' authorities have adequate procedures in place to protect the financial interest of the European Union. Deficiencies found during these on the spot controls are being followed up in the context of conformity clearance procedures. The diligence of the Member States' authorities in the recovery of the most significant irregularity cases is assessed in the context of further 9 conformity clearance procedures.

7.3. General trends

This paragraph provides an overview of trends and developments concerning the financial years 2006-2010. The outcomes of the descriptive analysis should be seen as a half-time-result.

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

7.3.1. Financial Years 2006-2010: impact on the budget

Table AG6 provides an overview of the total expenditure for the financial years 2006–2010 and cases of irregularities and fraud related to this expenditure.

Table AG6:expenditure, irregularity and fraud rates financial years 2006-2010[66]

Member States are ranked on basis of their irregularity rate (IrR). The irregularity rate is the relation between irregular amount and total expenditure[67]. The irregularity rate can be found in the fourth column of the right hand side.

The total expenditure in the period 2006-2010 was approximately EUR 249 billion. France had the highest expenditure. It spent about EUR 49 billion which is almost 20% of the total agricultural budget.

Member States reported 3 644 cases with a total amount affected of more than EUR 182 million, which implies an EU-27 irregularity rate of 0.07%. Spain reported with 728 cases the highest number of irregularities, followed by Italy and France with respectively 355 and 345 cases.

Hungary reported the highest amount affected by irregularities. Almost EUR 29 million was affected by irregularities which concern the sector cereals[68]. As already indicated, these cases should be considered separately. Leaving aside the Hungarian cases, this would mean that Spain and Italy have the highest amounts affected by irregularities with about EUR 28 million, which is in line with figures of previous years.

Hungary has the highest irregularity rate (0.57%) now it reported the highest amounts affected by irregularities (EUR 29 million) and has a relatively low expenditure. Bulgaria has the second highest irregularity rate: 0.52%. Luxembourg has the lowest IrR (0.01%), thus, can be found at the bottom of the list.

Big spenders as France, Germany, United Kingdom, Greece and Poland have an irregularity rate that is below the EU-27 average of 0.07%. The other two big spenders, Spain and Italy, have an irregularity rate above the EU-27 average, respectively 0.09% and 0.10%.

The 3 Scandinavian countries (Denmark, Finland and Sweden) have a comparable and low irregularity rate: 0.01%. The expenditure in these 3 Member States is in amounts more or less comparable with the Portuguese expenditure. The Portuguese irregularity rate differs however strongly: 0.14%. Portugal reported 251 cases and a total amount affected of about EUR 6.5 million as the 3 Scandinavian countries together reported 61 cases with a total amount affected of about EUR 1.5 million.

Remarkable is that the majority of the younger Member States can be found on top of the table and that the majority of older Member States can be found in the tail.

Remarkable is also that Member States with a relatively low expenditure have a rather high irregularity rate. This could indicate a higher audit rate, more tailor-made audit strategies and plans, better functioning irregularity reporting system and so forth. A similar trend can be seen within Member States. Provinces, regions or departments with a relatively low expenditure have in general a higher irregularity rate than the regions with a higher expenditure.

Chart AG7: expenditure and irregularity rate

Chart AG7 brings per Member State together the expenditures and irregularity rates. The green lines concern the expenditures as the red lines concern the irregularity rates.

Member States are ranked on basis of the total expenditure. France, the Member State with the highest expenditure, can be found on the left hand side while Malta, as the smallest spender, can be found on the right hand side. The precise figures can be found in table AG6.

The thin red line indicates the irregularity rate. The thick red line is a linear trend line which shows an increase of the irregularity rate from left to right. Member States with a higher expenditure have, in general, a lower irregularity rate than Member States with a lower expenditure. In last years Art. 325 Report was already mentioned that this trend can also be spotted in Member States. Regions that have a relatively low expenditure report more cases than regions with a higher expenditure. Last years' report contained examples for Austria, Spain and France.

It is however good to recall that the above shown figures should be seen as half-time-result. Audits are still ongoing, therefore, more irregularities will be reported which could turn the figures completely.

7.3.2. Financial Years 2006-2010: cases classified as suspected fraud

Table AG8 is an extract from table AG6 and contains only the figures concerning suspected fraud. Member States are ranked on basis of the fraud rate[69]. Bulgaria has the highest fraud rate, therefore, can be found on top of the table.

Table AG8: fraud rates

Member States classified 611 cases (out of 3 644 cases) as "suspected fraud". The total financial impact of these cases is about EUR 53 million which leads to an EU-27 fraud rate of 0.02%.

Eye-catching is that the vast majority of the cases is reported by young Member States. Almost 80% (488 cases) of the suspected fraud cases is reported by them. If also is taken into account that Italy is responsible for another 12% of the cases (72 cases), then one can only conclude that almost no fraud is reported by old Member States. The United Kingdom, for instance, reported for a period of 5 years, with a total expenditure of more than EUR 19 billion, 1 suspected fraud case with a total amount affected of about EUR 14 140. Other big spenders that have an extremely low fraud rate are Greece, Spain, Germany and France. Table AG9 provides a more simple and clear view on the number of suspected fraud cases reported, the expenditure, the amount affected by the suspected fraud cases and the fraud rate. Bear in mind that it concerns a period of 5 years: 2006-2010.

Table AG9: fraud cases big spenders

The number of fraud cases and the amounts affected are so low that the fraud rate needs to be indicated in 6 digits behind the dot. However, a level of 3, 4 or more digits behind the dot is not desirable now it would give the false impression of a very high level of precision. Presenting the fraud rates with only 1 digit would mean that the fraud rates for all these Member States would be zero.

7.3.3. Financial Years 2006-2010: overview per budget post

Table AG10 provides an overview per budget post of the expenditures, irregularities and suspected frauds cases. The totals are the same as in table AG6.

Table AG10: irregularity and fraud rates

The budget posts are ranked on basis of the irregularity rate (IrR). The budget post with the highest irregularity rate can be found on the top of the list, which is budget post B-050201 for cereals. The high rates for cereals are mainly caused by Hungary. Hungary reported 104 cases, of which 67 cases were classified as suspected fraud and 1 case as established fraud. It was already mentioned in paragraph 7.2.2. that the Hungarian cases concern a special situation and should be considered separately to avoid that these cases would distort the general picture.

The two budget posts with the highest expenditures, e.g. decoupled direct aids (B-050301) and other direct aid (B-050302), can be found at the tail of the list now they have an irregularity rate of 0.02% and a fraud rate smaller than 0.01%. These two sectors together cover more than 70% of the total expenditure which implies that these rates have a high and decreasing impact on the overall rates.

Table AG11 provides a simple overview how often a budget post occurred in an irregularity and what the financial impact was. Only the budget posts with a relatively high number and/or amounts affected are displayed.

Table AG11: irregularities per budget post

Clear is that a rather high number of cases (1 505) is reported for expenditures concerning rural development measures in case the 3 budget posts for rural development are taken together (B-050401, B-050404 and B-050405).

The following types of irregularities occurred most frequently in the sector rural development:

Beneficiaries seem to have problems with carrying out all necessary actions to fulfil the conditions under which the support is granted. By not handing over documents or handing over of false or falsified documents, beneficiaries try to cover the irregularity of not carrying out of all necessary actions.

The number of cases and the amounts affected for the sector decoupled direct aids (050301) is also high but that is not surprising since more than 55% of the total agricultural expenditure concerns decoupled direct aids. The types of irregularities that occur most frequently for decoupled direct aids (050301) are:

Member States did not indicate the type of irregularity or applied modus operandi for 81 cases.

For decoupled direct aids as well as rural development counts that Member States classify the majority of "overdeclaration-cases" as "suspected fraud". However, it should be noted that the fraud rates for these sectors are low with respectively 0.01% and 0.06% (see table AG10).

7.3.3.1. Financial Years 2006-2010: decoupled direct aids (B-050301)

A sector that "consumed" more than 57% of the total agricultural budget for the financial years 2006-2010, deserves some special attention. Table AG12 provides per Member State an overview of the expenditure and the cases of irregularities and suspected fraud.

Table AG12: decoupled direct aids – irregularity and fraud rates

Member States reported 1 140 cases of irregularities with a total amount affected of almost EUR 29 million. The EU-27 irregularity rate is approximately 0.02%.

Spain reported the highest number and the highest amounts: 268 cases and a total amount affected of more than EUR 6.1 million.

As already mentioned, the irregularity rate for the sector decoupled direct aids is rather low. It differs however strongly per Member State. A comparison between the top five spenders makes that clear. France reported 1 case as Spain reported 268 cases. Remarkable is also that only 2 of the 5 big spenders reported suspected fraud. A comparison between big spenders and small spenders is also interesting. Take for instance France and Bulgaria. The following table gives an interesting overview.

7.4. Specific analysis

Last year's Commission Staff Working Paper “Statistical Evaluation of Irregularities” introduced key-figures as Irregularity Rate (IrR), Fraud Rate (FrR), Fraud Amount Level and Fraud Frequence Level (FFL)[70].

To present reliable rates and levels, a time frame should be used that can be considered, from an irregularity reporting point of view, as "finalised". The financial year 2010 cannot yet be used to calculate rates and levels as a large number of irregularities concerning the financial year 2010 will be reported in the coming years. The same counts for the period 2006-2010.

The financial years 2004-2005 can be considered as finalised[71]. Member States had set up audit strategies and audit plans and performed audits on basis of these strategies and plans. Audit findings have become definitive and irregularities have been reported. The course of the number of cases of irregularities reported concern