Special Report No 3/2004 on recovery of irregular payments under the Common Agricultural Policy together with the Commission’s replies
Date: 2004-06-10
Institutions: European Court of Auditors
Subjects: European Commission, European Court of Auditors, administrative cooperation, agricultural expenditure, aid to agriculture, exchange of information, financial management, fraud against the EU, interinstitutional relations (EU), operation of the Institutions, report

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I

(Information)

COURT OF AUDITORS

SPECIAL REPORT No 3/2004

on recovery of irregular payments under the Common Agricultural Policy
together with the Commission’s replies

(pursuant to the second subparagraph of Article 248(4) of the EC Treaty)

(2004/C 269/01)

CONTENTS

Paragraph

Page

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Reported irregularities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Notification of irregularities: who does what? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Notification of irregularities: delays, gaps and inconsistencies . . . . . . . . . . . . . . . . . . . .

Checks on data: unsatisfactory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Quality of information about irregular payments: incomplete and inconsistent

Recovery and writing off: responsibilities of Member States and the Commission

Low rate of recovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Commission decisions on who should bear the cost of irregular payments which are not
recovered: no clear principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Division of responsibilities in the Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Commission makes little use of its experience of irregularities . . . . . . . . . . . . . . . .

The blacklist

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Recording of debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

I-IX

1-8

9-68

9-15

16-20

21-27

28-29

30-32

33-39

40-42

43-51

52-53

54-60

61-62

63-68

69-73

74-80

The Commission’s replies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2

3

4

4

6

7

8

8

8

9

10

11

11

13

13

14

14

18

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SUMMARY

I.
Member States are obliged to notify the Commission when they detect irregular payments over 4 000
euro made under the common agricultural policy (CAP) and to attempt to recover such payments. Where
recovery is not possible the sums concerned are written off and the losses are borne by the Community unless
non-recovery is due to the negligence of the Member State concerned. There is provision for a ‘blacklist’ to
identify recipients of irregular payments in excess of 100 000 euro in any one year. Under separate arrange-
ments Member States report all debts to the Community arising from the CAP.

II.
At the end of 2002 total irregular payments reported since 1971 totalled 3,1 billion euro. Of this sum
537 million euro had been recovered from beneficiaries and 252 million euro written off at the expense either
of the Community or of the Member State concerned. The remaining 75 % of reported irregular payments were
still ‘pending’, neither recovered nor written off. Most reported irregular payments relate to intervention in mar-
kets: expenditure in the fruit and vegetable sector and on export refunds accounts for over half of the total.

III.
The Court found that Member States provide information about irregularities as required but do so with
varying delays. There are also inconsistencies in the data. There are discrepancies between the data supplied by
Member States and the figures in the database drawn from them. The Commission’s database on reported
irregularities is not complete and accurate.

IV.
The low rate of recovery of irregular payments (a cumulative recovery rate of only 17 % since 1971)
is in part due to national administrative delays and practices (suspension of action to recover until related legal
action concerning fraud has been completed, absence of preferred creditor status for CAP debts, no disincen-
tive to frivolous appeals) and to the Commission’s reluctance to accept offers of partial settlement.

V.
Only 10 % of reported irregular payments have been written off, partly because Member States have
put forward few cases as irrecoverable, partly because the Commission has been slow to take action on long-
standing irregular payments. The Commission had no adequate criteria for deciding whether sums written off
should be charged to the Member States or borne by the Community and has inadequate information on
whether decisions written off are carried out correctly.

VI.
Responsibilities for irregular CAP payments are shared between OLAF and the Directorate-General for
Agriculture: formal and effective responsibilities differ; misunderstandings occur. The Commission does not
make systematic use of the information it obtains about irregularities when managing and proposing changes
in the CAP.

VII.

The ‘blacklist’ does not work.

The separate arrangements by which Member States report all debts due to the Community in respect
VIII.
of the CAP have been improved in recent years but still have a number of weaknesses. It is not possible to rec-
oncile the data produced with those for irregular payments.

IX.
The Court recommends the Commission to consider changes in the arrangements for the reporting,
recovery and writing off of irregular CAP payments to remedy the weaknesses set out above, and in the divi-
sion of responsibilities between OLAF and the Directorate-General for Agriculture; and to consult with Mem-
ber States on the future of the ‘blacklist’.

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INTRODUCTION

1.
The European Union spends more than 40 billion euro
annually on the common agricultural policy (CAP). Responsibil-
ity for managing this expenditure is shared between the Commis-
sion and Member States. This report examines one aspect of
shared management: notification and recovery of sums irregularly
paid to traders, farmers and other recipients of spending under
the CAP.

2.
Almost all payments under the CAP are made by paying
agencies in the Member States. Member States are required to

check that payments are properly made; to notify the Commis-
sion of irregular payments made and debts owing; and to recover
sums improperly paid.

3.
The cost of irregular payments which Member States do
not recover is borne by the Community budget unless non-
recovery is the result of negligence by the Member State con-
cerned. In that case the cost of irregular payments lies with the
Member State concerned. Illustration 1 shows how the system
works.

Illustration 1

Payment and checking procedure for CAP payments

A simplified description of the steps involved

Source: European Court of Auditors.

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According to the Commission’s Anti-fraud Office (OLAF),
4.
at the end of 2002 the cumulative total of irregular CAP pay-
ments notified by the Member States to the Commission since
1971 was 3,1 billion euro. Table 1 details the composition of this
amount and of the amount which remains to be recovered.

ANALYSIS

Reported irregularities

Table 1

Analysis of irregularities notified to the Commission since 1971

Irregularities notified after payment

Amount recovered from claimants

Amount charged to Member States

Amount written off against the EAGGF

Amount to be recovered (A)

(million euro)

3 139

538

142

110

2 349

9.
As at 31 December 2002 irregular payments notified since
1971 and recorded in the relevant Commission database (Exter-
nal Communications Registry (ECR)) amounted to 3 139 million
euro (2). The amount recorded as ‘to be recovered’ at the same
date was 2 349 million euro. In other words 25 % of irregular
payments made since 1971 had either been recovered from ben-
eficiaries, charged to Member States or written off against the
budget.

10.
Table 2 shows the value of irregular payments notified
and the cumulative rate of recovery by Member States (3). The fig-
ures are dominated, and distorted, by those for Italy, which:

Position as at 31 December 2002.
(A) Member States estimated that 46 % of this amount was realistically recoverable
Source: OLAF ECR database

(a) has reported 55 % of the irregular payments concerned (see

however paragraph 24);

Member States are also required to inform the Commis-
5.
sion (OLAF) if any recipients of CAP monies have received irregu-
lar payments totalling over 100 000 euro in a year - the
‘blacklist’ (1).

6.
The objective of this audit was to assess the role of the
Commission and Member States in the management and moni-
toring of recoveries of irregular CAP payments. This involved
consideration of whether, once frauds and irregularities had been
detected, Member States correctly notified cases to the Commis-
sion, established related debts and took recovery action. The audit
did not examine how well Member States’ control and fraud
investigation agencies detect fraud and irregularities.

7.

The Court examined:

(a) what the information provided shows about the extent,

nature and causes of irregularities;

(b) whether Member States and the Commission take appropri-
ate action to recover or write off irregular payments;

(c) whether the arrangements for providing information about

irregularities are satisfactory;

(d) whether the ‘blacklist’ works effectively;

(e) how the information on irregular payments compares with

that on debts.

8.
The audit was carried out at the Commission and in nine
Member States: Denmark, Germany, Greece, Spain, France, Ire-
land, Italy, Portugal and the United Kingdom.

(b) has the lowest cumulative rate of recovery (10 % of irregular

payments made since 1971).

Table 2

Irregularities detected after payment
and recovery rates (1971 to 2002)

Member State

Amounts detected
after payment

Amount
recovered

Cumulative
recovery rate
(%)

IT

DE

ES

BE

AT

PT

SE

FR

UK

EL

NL

IE

DK

FI

LU

1 735

173

403

264

100

8

50

1

159

122

131

84

39

40

1

40

35

15

2

13

0

58

49

54

47

23

28

1

10

10

13

15

22

25

36

36

40

41

56

58

71

90

p.m.

3 139

Total

p.m.

537

p.m.

17

Situation at 31 December 2002.
NB: Figures rounded to 1 000 000 euro.
Source: OLAF ECR database.

(1) Council Regulation (EC) No 1469/95 of 22 June 1995 (OJ L 145, 29.6.1995,

(3) These figures should be treated with caution for the reasons detailed in para-

p. 1).

graphs 21 to 32.

(2) A further 1 144 million euro detected before payment (and unpaid) are also

recorded in the ECR.

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As at 31 December 2002, 21 % of the debts date back

11.
prior to 1994 (see lllustration 2).

Illustration 3 shows the main budget headings in which
12.
reported irregularities occur. Approximately a quarter are in the
fruit and vegetable sector and between a quarter and a third in
export refunds.

Illustration 2

Age of outstanding debts arising from irregularities

Situation as at 31 December 2002.
NB: Two high value cases, totalling 300 million euro, were reported by Italy in 2000.
Source: OLAF ECR database of irregularities reported under Regulation (EEC) No 595/91.

Main budget headings for irregularities recorded in the ECR (1971 to 2002)

Illustration 3

As at 31 December 2002.
Source: OLAF ECR database.

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Irregular payments are relatively infrequently reported in
13.
the areas of spending subject to the Integrated Administration
and Control System (essentially area aid and animal premium
payments). This reflects the fact that:

(a)

IACS claims are subject to a 100 % check of all claims by
means of computerised cross-checks and comparisons with
independent data and sample checks on the spot, before pay-
ments are made. Discovery of an irregularity therefore means
claims are blocked before payment;

(b) where, exceptionally, irregularities are discovered after pay-
ment, the amount concerned will often be less than 4 000
euro and paying agencies can often make recovery by deduc-
tion from later claims; and

(c) administrative penalties are built

into the regulations,
enabling paying agencies to take appropriate action when
false claims are identified, without going to a court of law.

Irregularity cases, 29 notified, accounted for 40 % of the
14.
total amount to be recovered at 31 December 2002. They are
listed in Annex A.

It is impossible to estimate accurately the rate of irregu-
15.
larities affecting the CAP. However on the basis of reported
information:

(a)

(b)

the value of irregularities from 1994 to 2001 represents
between 0,3 % and 1,4 % of the EU agricultural budget for
the year in which they were notified. If Italy is excluded they
represent 0,5 % or less (see Table 3).

irregularities in the budget headings most heavily affected
(fruit and vegetables and export refunds - see Illustration 3)
represent 1,7 % of spending on these headings in years 1994
to 2001.

Table 3

Trend in value of reported irregularities

(million euro)

1994

1995

1996

1997

1998

1999

2000

2001

2002

Expenditure declared EAGGF
Guarantee

33 593

35 654

39 062

40 884

38 857

40 726

40 411

41 594

42 711

Irregularities notified

461,2

227,6

251,7

154,6

263,1

224,0

467,3

104,1

198,0

Percentage of annual budget

1,4

0,6

0,6

0,4

0,7

0,6

1,2

0,3

0,5

EAGGF expenditure declared
excluding Italy

30 000

31 285

34 631

35 559

34 708

35 709

35 874

36 124

37 022

Irregularities notified excluding Italy

136,6

139,5

Irregularities notified excluding Italy

0,5

0,4

86,6

0,3

124,1

100,4

163,9

166,6

0,3

0,3

0,5

0,5

65,3

0,2

134,1

0,4

Source: Table 4.6 of the 2002 ECA’s annual report and OLAF ECR database as at 31 December 2002 (which is not consistent with figures given in the Commission Report

2002 on the Fight against Fraud).

Notification of irregularities: who does what?

18.
Member States must also notify the Commission on a
quarterly basis of the steps they have taken following notification
of the irregularities including amounts recovered, reasons for
abandonment of recovery etc (3).

16.
Member States are required to notify the Commission
quarterly (1) of all irregular payments in excess of 4 000 euro
which ‘have been the subject of the primary administrative or
judicial findings of fact’ (2). The notification should contain a
range of quantitative and qualitative information on the fraud
such as the amount involved, budget heading, type of fraud and
method of detection etc. All of this information is entered in the
ECR.

19.
Where a Member State considers that an amount cannot
be totally recovered it must inform the Commission whether it
considers that the charge should be borne by EU or by the Mem-
ber State (4) and why.

17.
The Commission has developed the notion of primary
administrative or judicial findings in legislation and working
documents. Despite this, Member States interpret the requirement
differently.

20.
OLAF enters the data on notifications into the ECR. The
ECR database has been successively managed by the Commis-
sion’s Directorate-General for Agriculture, the Commission’s
Anti-fraud Unit (UCLAF) and, since 1995, OLAF.

In practice OLAF.

(1)
(2) Article 3 of Council Regulation (EEC) No 595/91 of 4 March 1991 (OJ L 67,

14.3.1991, p. 11).

(3) Article 5(1) of Council Regulation (EEC) No 595/91 of 4 March 1991.
(4) Article 5(2) of Council Regulation (EEC) No 595/91 of 4 March 1991.

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Notification of irregularities: delays, gaps and inconsistencies

21.
Member States are required to report irregularities within
two months of the end of each quarter; however, during 2002,
some 65 % (2 147 communications) were not reported on
time (1).

22.
sion

Member States have, on average, notified the Commis-
after
of

irregularities more

than

year

one

discovery (2). Member States’ individual average speed of notifi-
cation ranged from eight months (Portugal) to 23 months (Lux-
embourg) (see Illustration 4).

23.
Germany, Spain and France notified most cases in 2002
but Italy reported the highest value in that year, 80 million euro,
followed by Spain with 59 million euro (see Illustration 5).

Illustration 4

Average delays from discovery to report of irregularity

Situation as at 31 December 2002.
Source: OLAF ECR database of irregularities reported under Regulation (EEC) No 595/91.

Illustration 5

Irregularities communicated by the Member States in 2002

Source: Annex 2 to the OLAF annual report for 2002.

(1) Source: Paragraph 10.2 of the Annual Report for 2002 on the Protection of the

Financial Interests of the Communities and the fight against fraud.

(2)

In 17 955 out of a possible 29 311 cases it is possible to establish the speed with
which Member States notified irregular payments.

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Italy notifies cases on the basis of the irregularity report
24.
from the control or investigation body. In some instances these
bodies have not verified that the alleged irregular payments have
been made. This has resulted in overstatements of amounts to be
recovered in the ECR.

An Italian investigation agency reported a company for fraudu-
lently obtaining CAP subsidies for processing tomatoes. The
amount involved is 2,71 million euro. In fact the claims were
made but never paid. There is therefore no debt.

Quality of information about irregular payments: incomplete
and inconsistent

30.
For the reasons set out in paragraphs 21 to 29 and 31
and 32, the ECR database (and the figures relating to CAP irregu-
larities and debts published in the Commission’s 2002 Report on
the fight against fraud) cannot be considered reliable, complete
and accurate.

25.
For 91 of these cases in the ECR, Member States had not
provided information on the amounts involved. Of which, 37 had
been notified between 1979 and 1998. The Court brought this to
the attention of OLAF in August 2002. A year later OLAF had not
requested updated information from Member States for these
cases.

26.
to be
The ECR provides for penalties and interest
recorded separately (1). Some Member States, however, included
penalties and interest in the principal (Spain and Ireland). Infor-
mation on penalties and interest was recorded in less than 4 % of
the cases in the ECR. Only 5 % of cases reported or updated in
2002 contained information on penalties.

27.
There were also some significant inconsistencies of defi-
nition and coverage in the information supplied. For example, the
product description had not been completed in some 47 % of
cases notified for 2002 (2). In 7 % of cases the type of irregularity
had not been identified and in 4 % nor had the detection method.

Checks on data: unsatisfactory

28.
Because there was no procedure for systematically check-
ing the completeness and accuracy of the ECR database on the
spot against information on irregularity cases held in Member
States, in 2002 and 2003 OLAF asked Member States to verify
that the data in the ECR was accurate. For the most part Member
States did not address irregularities notified before 2002.

Most Member States drew attention to discrepancies
29.
between Member State data and the ECR. OLAF does not have an
analysis of these discrepancies, of the reasons for them, of cor-
rective action or of the changes made to the ECR. Nor has OLAF
sought to check that Member States have notified all of the cases
they should have notified, or verified whether Member States have
improperly closed cases and written down the impact of the
irregularity to zero.

(1) Article 3 of Council Regulation (EEC) No 595/91 of 4 March 1991 requires ‘the
financial consequences of the irregularity to be reported’ and Article 5 ‘the judi-
cial and administrative procedures instituted with a view to (…) applying sanc-
tions’.

31.
In addition to cases notified by Member States, OLAF
itself initiates investigations of some irregularity cases in the CAP
sector (as elsewhere in the Community budget). OLAF maintains
a Case Management System (CMS) database to record the progress
of these cases. The CMS does not show whether the case is
recorded in the ECR nor, if appropriate, whether it has been
charged to Member States under the clearance-of-accounts pro-
cedure (see paragraphs 34 to 37). Of a sample of 26 cases
recorded in the CMS, only 13 could be traced satisfactorily to
either an entry in the ECR or to closure of the case because no
irregularity had been detected.

32.
The Commission’s 2002 Report on the fight against
fraud significantly overstates the cumulative total for reported
irregularities against the CAP. The sources of the overstatement
are:

(a) 844 million euro where amounts relating to irregularities
detected before payment, notified in Italian lira, were
recorded as the same number of euro;

(b) at least 50 million euro for notifications double counted
because they were shown as being detected both before and
after payment in the ECR;

(c) at least 19 million euro for amounts reported in national cur-

rency and recorded as euro without conversion.

Recovery and writing off: responsibilities of Member States and
the Commission

33.

Member States must:

(a)

satisfy themselves that CAP transactions are carried out and
executed correctly;

(b) prevent and detect irregularities;

(c)

recover sums lost as a result of irregularities or negligence, in
the amounts
which case they may retain 20 % of
recovered (3);

(2) Source: paragraph 11.2 of the Annual Report for 2002 on the Protection of the

(3) Article 8(1) of Council Regulation (EC) No 1258/1999 of 17 May 1999

Financial Interests of the Communities and the fight against fraud.

(OJ L 160, 26.6.1999, p. 103).

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(d) notify the Commission of sums which are outstanding; and

(d)

the Commission will use information about the incidence of
irregularities for the management of the CAP to improve
control procedures.

(e) of sums which are unlikely to be recovered.

34.
The Commission decides whether sums which cannot be
recovered should be borne by the Community, or borne by the
Member State concerned (on the grounds that non-recovery is the
consequence of negligence or irregularity by that Member
State (1)).

35.
Where the Commission decides that the financial conse-
quences of non-recovery should be borne by the Member State
concerned, the decision is taken as part of the ‘clearance-of-
accounts procedure’. This is the procedure in which the Commis-
sion decides whether expenditure undertaken by paying agencies
has been carried out in accordance with EC law and should be
definitively charged to EU budget. If sums are to be charged to
Member States the Commission deducts them from the monthly
payments to finance the CAP which it makes to the paying agency
concerned.

36.
OLAF (and formerly UCLAF) is responsible for recom-
mending whether the amounts should be written off to the bud-
get (i.e. borne by the Community taxpayer) or in cases of negli-
gence should be charged to Member States. The Directorate-
for Agriculture is responsible for the Commission
General
decision.

Community law leaves it to the Commission to judge
37.
whether lack of recovery in a given case should be attributed to
negligence by a Member State, and its costs borne by national tax-
payers. There is, however, relevant European Court of Justice
jurisprudence. The European Court of Justice ruled in 1989 (2)
that in waiting four to 10 years before starting proceedings to
recover amounts wrongly paid, the Italian authorities had not
acted with the necessary diligence (3).

38.

In a well-functioning system:

(a) Member States will take all required action to recover sums

irregularly paid;

39.

The arrangements were unsatisfactory in all four respects.

Low rate of recovery

Table 2 shows that, at the end of 2002, the cumulative

40.
recovery rate was only 17 %.

The main reasons for the low rate of recovery are as

41.
follows:

(a)

some Member States’ administrative and judicial systems are
slow. This prejudices the likelihood of eventual recovery
because assets disappear, companies are liquidated,
indi-
vidual beneficiaries disappear or die etc.;

False claims for aid for the production of concentrated
wine led to irregular payments of 8,3 million euro.
The irregularity was first reported to the Greek paying
agency in 1990.
The Greek Ministry of Agriculture did not classify it as an
irregularity until December 1996.
The case, which has been referred to the Greek courts, has
still not been heard and no monies have been recovered.

(b)

recovery is further delayed where recovery procedures are
suspended until the outcome of any associated fraud case is
decided (for example, in Italy). Fraud cases require proof of
intent before someone can be found guilty which is not nec-
essary for the recovery of a de facto irregular payment;

(b)

the Commission will encourage Member States to operate
effectively;

(c)

some Member States do not give CAP debts preferential sta-
tus (there is no EU legislation requiring them to do so);

(c)

the Commission will make appropriate judgements about
whether sums irregularly paid and not recovered are charged
to the Community budget or to the individual Member State
concerned;

(1) Article 5(2) of Council Regulation (EEC) No 595/91 of 4 March 1991.
(2) The Court of Justice ruled that Member States should respect the obligation of
diligence which ‘implies that the Member States must take steps to rectify irregu-
larities promptly’, adding that ‘with the passage of time, recovery of sums
wrongly paid is likely to become more complicated or impossible for reasons
such as the fact that the undertakings may have ceased trading or accounting
documents may have been lost’.

(3) Case C-34/89 of 11 October 1990, Italian Republic v Commission of the European

Communities.

In early 1992 a combined UCLAF/German investigation
proved skimmed-milk powder from intervention stocks,
exported with refunds, had not been placed on the market
outside the EU. Irregular payments of export refunds
amounted to 24,9 million euro to a German company and
18,6 million euro to a Belgian one.
Despite a request from the Commission in February 1993,
Germany did not issue recovery orders until August 1995.

In August 1996 an offer was made to pay 5,1 million euro
(being the value of the available assets of the German com-
pany). This was rejected by the Commission in April 1997.

By December 1999 the assets had diminished to 1,5 mil-
lion euro. None of the subsidies totalling 43,5 million euro
has been recovered.

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(d)

there is inadequate use of procedures to offset debts against
other CAP payments which are due. Offset procedures
between paying agencies (for example in Spain, France, Italy
and Portugal) or within the same paying agency (for example
in Denmark) are not used by either because such offset is pre-
cluded under national law or because of inadequate commu-
nication channels;

(e) national legislation in some Member States does not require
a guarantee to be lodged, equivalent to the amount in dis-
pute, before an appeal can be made (the Court made this
observation in 2000 in the context of olive oil consumption
aid irregularities (1));

(f)

the Commission has, to date, refused to accept offers to settle
for amounts referred to it by the Member States. These are
calculated on the basis of the assets available to the debtor
and are lower than the debt.

However, even if recovery procedures were faster and recovery
possibilities maximised, some debts would still have to be writ-
ten off because of insolvency, death, official error, equity, cost
effectiveness etc. It is not possible to estimate how much would
be written off for these reasons.

Live bovine animals for slaughter, exported to Poland with
refunds in 1990, were misdeclared as pure-bred animals with
resulting irregular payments in three cases of 2,6 million euro.
These cases were excluded from a clearance-of-accounts finan-
cial correction in 1994 for similar cases pending the result of
recovery action.
In 1999 the Court of Justice upheld the Commission’s financial
correction. The Commission has since however failed to follow
up the three cases excluded.

44.
The Commission had no adequate criteria for making
recommendations for writing off nor on the nature of support-
ing evidence required. There was no systematic analysis in the
files presenting the arguments and evidence in support of the
recommendations.

Tests were carried out on a selection of 30 cases recorded
45.
in the ECR, where the Commission had decided that the cost
should be charged to Member States. The selection concentrated
on pre-1996 cases as there had been no clearance-of-accounts
decision on cases since that year except for the special exercise
mentioned below. Of the 30 cases examined, only three con-
tained satisfactory evidence that the amounts had in fact been
recovered from Member States (2).

42.
The Commission has limited powers to influence the way
in which Member States carry out their responsibilities under the
regulation. It cannot intervene in Member States, administrative
or judicial procedures in order to speed them up. On the other
hand:

46.
Some 30 cases recorded as charged to the budget were
also examined. In eight cases the files could not be found and in
15 cases there was insufficient evidence (3) that the amounts were
irrecoverable. There were reasoned arguments for decisions in
few (4) of the files examined.

(a)

the Commission can take action to recover the value of old
debts from Member States, on the basis of the European
Court of Justice ruling referred to in paragraph 37;

(b) Community law provides an incentive to Member States to
recover monies unduly paid in that they may retain 20 % of
amounts recovered. In view of the cumulative recovery rate
of 17 % this incentive cannot be considered to have achieved
its objective. OLAF does not have a reliable record of
amounts retained.

Commission decisions on who should bear the cost of irregular
payments which are not recovered: no clear principles

According to the ECR, since 1971 a total of 110 million
43.
euro has been written off against the EU budget and 142 million
euro charged to Member States. These amounts are small (10 %)
in relation to the total amount to be recovered, partly because
Member States have proposed few cases to be written off as irre-
coverable and partly because the Commission action to clear up
the old debts has not been timely.

(1) Special Report No 11/2000, paragraph 101 (OJ C 215, 27.7.2000).

There is a particular respect in which writing off proce-
47.
dures by Member States interact with the clearance of accounts.
Under the clearance-of-accounts procedure, disallowance of
expenditure normally takes the form of a ‘flat-rate correction’: the
Commission judges that a Member State has failed to manage cer-
tain expenditure properly and disallows from EU financing (i.e. in
effect charges to the Member State) a percentage of the expendi-
ture concerned as a sanction for poor management and an incen-
tive for improvement.

48.
Some Member States have taken the opportunity of such
flat-rate corrections to write off debts arising from irregularities
committed in that same area of expenditure up to the value of the
correction, rather than proposing writing off under the condition
discussed in paragraphs 33 to 37. The Commission considers that
this practice is not in conformity with the legal provisions relat-
ing to clearance of accounts. Neither OLAF nor the Directorate-
General for Agriculture has maintained records of such accounts
written off, nor reconciled them with the amounts of the related
clearance-of-accounts corrections. The total amount written off in
this way is therefore not known.

(2) Five files could not be found; four cases had been treated as being already cov-
ered by flat rate corrections and in one case the amount had been charged to the
budget not to the Member State.

(3) For example, bankruptcy or winding up orders.
(4) There were reasoned arguments in eight of the 30 files examined.

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OLAF initiated a special exercise in March 1999 to exam-
49.
ine pre-1996 amounts to be recovered. Old cases were defined as
cases with administrative delays exceeding four years and/or judi-
cial delays exceeding eight years (1). All such cases with amounts
outstanding of more than 50 000 euro were to be examined in
depth. Those less than 50 000 euro were to be subject to a less
rigorous review.

The Commission Decision (2) on these cases was pub-
50.
lished on 28 June 2003. The amount of 69,4 million euro was
written off against the budget and 5,3 million charged to Mem-
ber States. Italian cases, which account for 66 % (750 million
euro) of the amount to be recovered for pre-1995 cases, were
excluded from the recommendations and decision. No reason was
given for this. Also excluded from consideration were 95 pre-
1995 cases for a total value of 118,8 million euro.

51.
As was the case for recommendations made under the
normal procedure, there was no systematic analysis in the files of
the reasons leading to the recommendations. The Commission
has now set up a task force to examine pre-1999 cases for
amounts in excess of 500 000 euro.

In the framework of the clearance of accounts for 1993, the
Commission proposed to charge Germany 8,2 million euro for
21 cases where it considered Germany to have been negligent
in its recovery action. The financial correction was however not
implemented because of inadequate bilateral consultation.
All but two of the cases were reconsidered for the 1995 deci-
sion and were charged to the EAGGF.
The Commission has not documented the reasons for reversing
its original proposal.

53.
Current arrangements split nominal and effective respon-
sibility for this procedure in a way which reduces accountability.
Recommending writing off is not a function that fits well the role
of a fraud investigation and coordination body.

The Commission makes little use of
irregularities

its experience of

Division of responsibilities in the Commission

Notifications to OLAF for input

54.
to the ECR were
intended, amongst other things, to intensify the campaign against
fraud and irregularities.

52.
As explained above, OLAF manages the ECR database.
for Agriculture is responsible for
The Directorate-General
clearance-of-accounts decisions. There are instances in which this
division of responsibilities causes problems of communication:

(a)

there was no provision for the Directorate-General for Agri-
culture to transmit systematically to OLAF copies of all clear-
ance decisions whereby Member States have been charged
with the financial consequences of irregularities. Conse-
quently there was no systematic evidence in the OLAF files
that the amounts recorded as having been charged to Mem-
ber States had actually been recovered under the clearance-
of-accounts procedure;

(b)

the 1995 decision (3) to write off amounts against the bud-
get was not reflected in the ECR database. As a result cases
were examined again in 2003 and in some instances the
decision was the opposite of that taken in 1995;

(c)

some Member States have written off amounts on the basis
of OLAF’s recommendations in advance of a Commission
Decision.

In this context, the Council (4) requested the Commission
55.
to develop an investigation policy based upon strategic and
operational analysis of information on fraud, irregularities and
recoveries reported by Member States. Parliament (5) has criticised
the fact that the debt arising from irregularities and fraud has built
up to an unacceptable level and that the recovery procedures do
not work. It called upon the Commission to submit a detailed
analysis of the causes of this problem and proposals to remedy it.
The Commission (6) submitted a communication on improving
the recovery of Community entitlements in December 2002. Par-
liament expressed doubts that the recovery procedures could be
improved without clarification of the division of responsibilities
between OLAF and the Directorate-General for Agriculture.

56.
The Commission has drawn attention to the poor qual-
ity of information provided by Member States in its Annual
Report on the fight against fraud 2002. It quotes the example that
in 47 % of cases reported, the products involved were not iden-
tified, which does not facilitate risk analysis and which makes it
harder to draw appropriate lessons. It is attempting to improve
the quality and timeliness of notifications by the introduction of
direct input to the ECR by Member States, coupled with a pro-
gramme of training courses and the provision of an ECR user
manual.

(1) This definition is derived from the judgment in European Court of Justice Case

No C-34/89.

(2) Commission Decision 2003/481/EC of 27 June 2003 (OJ L 160, 28.6.2003,

p. 83).

(3) This was the last of the annual decisions dealing with cases recommended for

writing off by Member States.

(4) Council conclusions on protection of the financial interests of the Communities

and the fight against fraud 13244/1/02 REV 1 of 6 November 2002.

(5) Report of the Committee on Budgetary Control on the Annual Report on the

fight against fraud 2001, PE 315.805 of 3 March 2003.

(6) COM(2002) 671 final of 3 December 2002.

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However there are other weaknesses to be addressed in
57.
the design of ECR information. There are too many descriptions
for the type of fraud and irregularities, 79 in all, some of which
are ambiguous (see Table 4); the budget headings have not been

entered in a consistent format and there are 46 codes for method
of detection, some of which are again ambiguous (see Table 5).
Rationalisation and simplification of these descriptions would
facilitate meaningful interpretation.

Table 4

Types of irregularity

Type of irregularity

Value of irregularities
reported
(million euro)

Percentage of total
reported value

Cumulative percentage

Fictitious use or processing

False or falsified commercial documents

Inexact quantity

False or falsified request for aid

Fictitious movement

Variation in quality or content

Other cases of irregular documents

Other irregularities

Trafficking in withdrawn or stockpiled products

Falsified customs documents

Change of destination

Non arrival at final destination

Failure to respect other conditions

984

379

270

208

201

169

148

120

97

91

91

91

71

Situation as at 31 December 2002.
Source: OLAF ECR database of irregularities reported under Regulation (EEC) No 595/91.

23

9

6

5

5

4

3

3

2

2

2

2

2

23

32

38

43

48

52

55

58

60

62

64

66

68

Table 5

Detection methods

Value of irregularities
reported
(million euro)

1 137

950

253

237

180

153

126

123

92

90

85

81

Percentage of total
reported

Cumulative percentage

27

22

6

6

4

4

3

3

2

2

2

2

27

49

55

60

64

68

71

74

76

78

80

82

Detection method

Documentary checks

Judicial enquiry

National fiscal control

Routine control

Accounting control

EU initiative

Judicial enquiry

Interservice collaboration

Laboratory analysis of samples

National customs control

Control on the premises of the beneficiary

Other

Situation as at 31 December 2002.
Source: OLAF ECR database of irregularities reported under Regulation (EEC) No 595/91.

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The Court also found that there were significant errors in
58.
the data recorded in the ECR and even the absence of financial
data of any kind for 91 cases (see paragraph 25).

Recording of debts

59.
The ECR records the identities of persons consulting the
database and the number of times it has been consulted. From
October 2001 to September 2002 there were 11 direct consul-
tations by Commission Directorates-General. OLAF, however, has
not carried out an evaluation of the use of the ECR data to deter-
mine whether or not it has provided useful information and has
thus contributed to the fight against fraud.

60.
The Commission is required to study the information of
which it has been notified and to inform Member States’ repre-
sentatives (meeting in the EAGGF Committee (1)) of any conclu-
sions it intends to draw from them (2). Although some informa-
tion has been provided to the ‘Irregularities Group’ (3), neither
OLAF nor its predecessor UCLAF has made such a report to the
EAGGF Committee (4).

The blacklist

Member States are required to notify the Commission of
61.
the identity of operators who have committed irregularities
exceeding 100 000 euro over a period of one year, together with
details of the measures taken against those operators. Member
States have in general considered it impossible effectively to
exclude entities found to have been involved in irregular or
fraudulent operations from claiming further payments (e.g. the
business can be transferred to another legal entity with the same
shareholders etc).

62.
Only six Member States have ever notified a company or
individual under these arrangements (see also Special Report No
8/98, paragraphs 4.12 to 4.14 (5)). Comments received from
Member States visited indicated that the greatest hindrance to the
regulation was the fact that placing a company or individual on
the blacklist may leave them open to legal redress and possible
damages. Until fraud is proven in a court of law (often a very
lengthy process) it is uncertain whether a Member State can itself
legally notify the names of companies and or individuals.

(1) The EAGGF (European Agricultural Guidance and Guarantee Fund) Committee
and Irregularities Group are advisory bodies to the Commission. They are
chaired by a Commission official and consist of representatives from Member
States.

(2) Article 2(3) of Council Regulation (EEC) No 595/91 of 4 March 1991.
(3) Group ‘Irregularites and mutual assistance, agricultural products’, Regulations
(EEC) No 595/91 of 4 March 1991 (OJ L 67, 14.3.1991, p. 11) and (EC) No
515/97 of 13 March 1997 (OJ L 83, 25.3.1997, p. 1).
Irregularities and Mutual Assistance - Agricultural Products, Regulations (EEC)
No 595/91 and (EC) No 515/97.

(4)

(5) OJ C 230, 22.7.1998, p. 16.

63.
Since 1996 Member States’ CAP paying agencies have
been required to establish a list of debts (6) due to the Commu-
nity under the CAP (debtors’ ledger). Since 2000, Member States
have been required to inform the Commission (Directorate-
General for Agriculture) twice yearly of the debt situation and
progress of recoveries, as recorded in the debtors’ ledger, in an
account known as Table 105 (7). The amounts notified via
Table 105 are included in the Commission’s consolidated balance
sheet (8).

Since 1996, certifying bodies (9) have had to evaluate
64.
whether the debtors’ ledger, produced by CAP paying agencies
which they audit, gives a correct and complete picture of the
amounts to be recovered, the procedures for recovery are effec-
tive, and the amounts are correctly credited to the budget in good
time.

is concerned,

So far as Table 105 material

65.
the
Directorate-General for Agriculture concluded in 1999, on the
basis of audits carried out in Member States, that there were some
doubts over the completeness and accuracy of some paying agen-
cies’ debtors’ ledgers and that there was no guarantee that Mem-
ber States were consistent in their approach to recording debt.
The ensuing report recommended that Commission services, pay-
ing agencies’ internal audit services and certifying bodies should
make further efforts to improve the management of debts. Since
2001 certifying bodies have had to certify the accuracy of
Table 105.

66.
Certifying bodies do not use information held by the
various control and fraud investigation bodies to check the com-
pleteness of debtors’ ledgers. Using information held on debtors
at paying agencies, three certifying bodies qualified their certifi-
cates and nine certifying bodies noted serious weaknesses in the
procedures for recording and recovering debts (see Annex B). The
Court also noted that, in nine cases, the scope of the certifying
bodies’ audits of debtors did not meet
the Commission’s
guidelines.

67.
All Member States have set up debtors’ ledgers and since
2000 have submitted Table 105 to the Commission containing
the required information. The audit did not reveal any material
errors in the recording of new debts. The requirement to main-
tain a debtors’ ledger was introduced with effect from 1996. How-
ever, some Member States (Denmark, Germany, Greece and the
United Kingdom) have still not registered all debts incurred before
that year in the debtors’ ledgers. Member States have also written

(6)

Including irregularities and other amounts due, for example, irregularities less
than 4 000 euro, official error, etc.

(7) Article 3(6) of Commission Regulation (EC) No 296/96 of 16 February 1996
(OJ L 39, 17.2.1996, p. 5) as amended by Commission Regulation (EC) No
2761/1999.

(8) Under heading VII (Short-term assets) B. (Current assets) 2. (Advances owed by

Member States) (a) (EAGGF Guarantee).

(9) Certifying bodies are appointed by Member States under the clearance-of-
accounts procedures. They audit the CAP expenditure declared by Member
States’ paying agencies and certify (or qualify) the accounts of such expenditure.
The Commission takes account of these certificates in arriving at its annual
financial decision to clear CAP expenditure.

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off amounts as irrecoverable without a Commission Decision that
the debt cannot be recovered and whether the budget or the
Member States should bear the cost. The total debt for 2002 is
therefore understated by 43,8 million euro (1).

(c) There were significant weaknesses in Member States’ arrange-
ments for the recovery of irregular CAP payments (see para-
graph 41).

68.
The information provided in Table 105 distinguishes
between cases which are notifiable to the ECR and other cases
(not arising from irregularity or amounting to less than 4 000
euro). Although the reporting dates for the two sets of figures are
different, it should be possible to reconcile, identify and correct
the differences between them (the ECR showed a total of
2 349 million euro at 31 December 2002: the equivalent figure
in Table 105 was 2 093 million euro at 15 October 2002). The
Commission is unable to do so. OLAF and the Directorate-
General for Agriculture are therefore working on the basis of dif-
ferent sets of data and have not reconciled them.

CONCLUSIONS

The European Union’s arrangements for the notification,
69.
recovery and writing off of irregular payments provide for rel-
evant information to be reported (type of irregularity, detection
method, etc.) and encourage Member States to take recovery
action by providing both an incentive (20 % retention of amounts
recovered) and a sanction (amounts not recovered to be charged
to Member States in cases of negligence).

However, in practice, of the irregular payments made and
70.
notified to the Commission since 1971, totalling 3,1 billion euro,
537 million euro had been recovered from CAP beneficiaries by
the end of 2002; 110 million euro had been written off against
the Community budget and 142 million euro had been written
off at the cost of Member States. Three quarters of irregular pay-
ments reported remain ‘pending’, neither recovered nor written
off.

71.
No system will achieve 100 % recovery of irregular pay-
ments; and some backlog of cases is inevitable. But the Court’s
audit revealed a number of weaknesses in the design of the
arrangements for recording, recovering and writing off irregular
payments under the CAP and, in particular, in how these arrange-
ments are operated by the Commission and the Member States.

(a) Member States interpret the definition of the point when
they should report irregular payments in different ways (see
paragraph 17). Some of the data requirements for Member
States are unclear (see paragraphs 56 and 57).

(d) Decisions on whether irregular payments should be written
off and, if so, whether at Community or national expense
must normally await a Member State proposal for write off.
The Commission has only limited powers to intervene in this
procedure. On the other hand European Court of Justice
jurisprudence provides support for Commission action in the
case of unreasonable delay by Member States. This is the
background to the creation of the Task Force discussed in
paragraph 51.

(e) The Commission did not have clear criteria for deciding
whether irrecoverable irregular payments should be charged
to the Member States concerned or to the Community bud-
get (see paragraphs 43 to 51).

(f) The involvement of both OLAF and the Commission’s
Directorate-General for Agriculture in decisions of writing
off is a source of confusion and inefficiency (see para-
graphs 52 to 55).

72.
The parallel arrangements for debtors’ ledgers provide
information for balance sheet purposes about a broader range of
debts under the CAP. All Member States have set up debtors’ led-
gers and have submitted the required data. The Commission also
provided guidelines for certifying bodies to audit debtors. The
Court however noted a number of gaps and, in respect of debts
arising from irregular payments, inaccuracies in these debtors’ led-
gers (see paragraphs 63 to 68).

The ‘blacklist’ has proved unworkable. Only six Member
73.
States have ever communicated names of individuals or compa-
nies and it has proved impossible to effectively implement the
sanctions foreseen (see paragraphs 61 and 62).

RECOMMENDATIONS

74.
The Court recommends the Commission to consider a
number of possible changes in the arrangements discussed above,
in order to:

— improve the information available to the Commission about

CAP irregular payments and debts,

— improve recovery by Member States of sums irregularly paid,

(b) Member States have been slow, and some much slower than
others, in reporting irregular payments (see paragraph 22).
There are also significant gaps and inconsistencies in the data
which they supply (see paragraphs 24 to 27).

— clarify the basis on which the Commission decides whether
irregular payments written off should be borne by Member
States or by the Community,

(1) As Table 105 was introduced with effect from 2000, the amounts incorrectly
written off from the debtors’ ledgers in previous years will have to be established
by Member States.

— clarify responsibilities within the Commission and improve

communications,

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— make better use in managing the CAP of

information

— ensuring that irregular payments are offset against other EU

obtained about irregular payments.

payments due to the recipient,

To improve information and facilitate its use, the Com-

Some of the changes suggested for consideration would require
legislation.
75.
mission should consider:
— ensuring that Member States interpret the ‘primary adminis-
trative or judicial findings of facts’ in a consistent and har-
monised manner when reporting irregular payments,
— increasing the 4 000 euro threshold for reporting cases in the

ECR,

— simplifying and reducing the number of definitions of types
of fraud and methods of detection in the arrangements for
reporting irregular CAP payments,

— improving its own checks of the data supplied by Member

States,

— taking action to reconcile the ECR figures and debtors’

ledgers.

To encourage recovery by Member States of irregular

76.
payments under the CAP, the Commission should consider:
— charging to Member States irregular CAP payments which
have been outstanding for longer than a specific period and
in respect of which no proposal for writing off has been
received,

— asking Member States to give at least the same priority to the
recovery of CAP debts as to the recovery of national subsidies.

77.
The Commission should establish clear criteria for decid-
ing whether irregular payments written off should be charged to
Member States or borne by the Community. The Commission
should take action against Member States which have offset
amounts to be recovered against flat-rate corrections.

78.
The Commission should consider whether the present
sharing of responsibilities for CAP irregularities between OLAF
and the Directorate-General for Agriculture is appropriate.

79.
The Commission should report each year on lessons
learned from data on irregularites and the conclusions drawn for
the management of the CAP. Such a report might be included in
the annual report on the fight against fraud or in the Annual
Report on the CAP.

In addition, the Commission should consult with Mem-

80.
ber States on the future of the ‘blacklist’.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 10 June 2004.

For the Court of Auditors
Juan Manuel FABRA VALLÉS
President

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ANNEX A

LIST OF CASES REPORTED WITH THE HIGHEST VALUES

Member
State

IT

IT

IT

IT

IT

IT

ES

BE

IT

DE

IT

IT

DE

IT

IT

IT

IT

IT

IT

IT

DE

IT

ES

IT

IT

IT

IT

IT

BE

YEAR

2000

2000

1998

1993

1994

1998

1994

2000

1994

1995

1994

1996

1995

1998

1996

1988

1988

2002

1996

1994

1998

1988

1994

1996

2001

1994

2002

1996

1994

Measure

Support measures in the oilseed sector

Export refunds on cereals

Olive oil consumption aid

Export refunds on cereals

Export refunds on cereals

Olive oil consumption aid

Export refunds on cereals

Export refunds on butter

Export refunds on beef

Export refunds on butter

Olive oil consumption aid

Export refunds on cereals

Export refunds on butter

Olive oil consumption aid

Support measures in the oilseed sector

Processing fruit and vegetables

Processing fruit and vegetables

Processing fruit and vegetables

Aid for cereals

Export refunds on beef

Export refunds on beef

Processing fruit and vegetables

Export refunds on wine

Storage of cereals

Processing fruit and vegetables

Olive oil consumption aid

Support measures for fresh friuit & vegetables

Storage of cereals

Export refunds on beef

(euro)

Outstanding debt

170 936 471

118 956 431

65 710 432

63 933 593

41 760 653

40 623 436

32 896 221

31 547 680

29 851 835

24 926 886

19 743 900

19 054 353

18 630 965

17 253 375

17 196 270

16 860 045

16 296 644

15 805 670

15 774 830

14 262 505

14 023 242

13 944 336

13 334 611

12 302 920

11 784 714

11 445 839

11 012 392

10 949 622

10 121 398

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ANNEX B

WEAKNESSES IN PROCEDURES FOR RECORDING AND RECOVERING DEBTS

Qualification raised by Certifying
Bodies

Grounds for qualification

OPEKEPE (EL)

Accuracy/completeness/provision of doubtful debts’ problems.

Vlaamse Gemeenschap (BE)

Unable to certify completeness of Table 105.

IFADAP (PT)

Unable to certify completeness of Table 105.

Significant weaknesses noted by
Certifying Bodies

Reasons for weaknesses

Delays in the recovery of debts, no interest charged on the capital amount
of debt.

Problems concerning completeness and accuracy aspects of Table 105.

Backlog of debts pending recovery.

Long delays in the recording and recovery of debts, there was no consistent
policy on charging interest.

Problems noted in the recovery of debts.

Long delays in the recording and recovery of debts, no reconciliation
between the accounting records and debtors’ ledger.

Qualification was raised last year, recovery problems continued to be noted
this year.

Lengthy intervals between the notification of irregularities and their
recording in the debtors’ ledger.

Debts understated by 3 %.

Reasons for unsatisfactory work

Scope of CBs debtors’ audit did not meet the requirements mentioned in
the Commission guidelines.

Bayern StMLU (DE)

Brandenburg (DE)

DFFE (DK)

CATALUÑA (ES)

AGEA (IT)

SEERAD (UK)

SDE (FR)

DAF (ES)

INGA (PT)

Lack of satisfactory work carried out
by Certifying Bodies on debtors’
section (1)

FAGA (ES)

Castilla la Mancha (ES)

OFIMER (FR)

OFIVAL (FR)

BLE (DE)

Baden-Württemberg (DE)

DLG (NL)

HPA (NL)

PZ (NL)

PVVE (NL)

(1) Conclusions are based upon the Court’s evaluation of the CB reports.
Source: Debtors’ section in Certifying Body reports for EAGGF year 2002.

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THE COMMISSION’S REPLIES

SUMMARY

For the protection of its financial interests, Community leg-
I.
islation lays down reporting requirements as regards Community
fields of activity (1). The Member States must send regular reports
of irregularities which have been the subject of primary adminis-
trative or judicial findings of fact. Regulation (EEC) No 595/91
organises the system of communications of irregularities in the
field of the expenditure by the EAGGF — Guarantee Section
(European Agricultural Guidance and Guarantee Fund).

As the Council has stressed on a number of occasions, it is essen-
tial that the information supplied be consistent and of high qual-
ity if the Commission is to make the best use of it in stepping up
the fight against fraud and ensuring that cases are properly fol-
lowed up (6), at both national and Community level.

The experience gained and the improvements realised will con-
tribute to increasing the efficiency of the notification system and
the reliability of the data.

In order to facilitate exploitation of the information notified to
the Commission, Community legislation contains a detailed list of
the information to be provided, in particular the provision which
has been infringed, the amounts in question, the practices used to
commit
the irregularity, and the natural or legal persons
involved (2).

II.
According to the Commission Report on the Protection of
the Financial Interests of the Community and Fight Against Fraud
— Annual Report 2002 hereafter referred to as ‘Commission
Report 2002 on the fight against fraud’, the highest amounts
affected by the irregularities were reported in the fruit and veg-
etable sector. Member States were also informed of this trend in
several meetings as Article 280 Working Group, Cocolaf and the
Working Group ‘Irregularities and Mutual Assistance — Agricul-
tural Products’.

Member States have the obligation to prevent and deal with
irregularities and to recover amounts lost as a result of irregulari-
ties or negligence (3). Regulation (EEC) No 595/91 provides for
the communication of all irregularities above EUR 4 000 to the
Commission, meaning that all behaviour, intentional or not, that
results in the infringement of a provision of Community law has
to be communicated. The Commission has taken different initia-
tives in order to ensure that cases should be identified as a fraud
or an irregularity.

The mutual notification and information system thus established
is the concrete expression of the mutual duties of sincere coop-
eration arising from Article 10 of the EC Treaty (4), on which the
Commission’s antifraud strategy, defined in July 2000 (5), rests.
This partnership between the Commission and the Member States
is also the guiding principle behind the provisions of secondary
legislation.

(1) See in particular Article 3(1) of Council Regulation (EEC) No 595/91 (OJ L 67,
7.3.1997), Commission Regulation (EC) No 1681/94 and (EC) No 1831/94 of
26 July 1994 (OJ L 191, 27.7.1994) for expenditure, and Article 6(5) of Coun-
cil Regulation (EC, Euratom) No 1150/2000 for traditional own resources.
(2) Except for Council Regulation (EC, Euratom) No 1150/2000 implementing
Decision 94/728/EC, Euratom on the system of the Communities’ own resources
(OJ L 130, 31.5.2000), where this information is optional only.

(3) See Article 8 of Regulation (EC) No 2988/95 (OJ L 312, 23.12.1995) and Article

8 of Regulation (EC) No 1258/1999 (OJ L 160, 26.6.1999).

(4) As confirmed by the Court in the Zwartfeld and Yugoslav maize cases. Case C-2/88
[1990] ECR I-3365, 13.7.1990; Case C-68/88 Commission v Greece [1989] ECR
2965.

(5) COM(2000) 358 final of 28 June 2000 and Action Plan 2001-2003

The electronic data base storing the bulk of communications of
irregularities transmitted by Member States has been subjected to
a thorough quality check in 2003 by the Commission with the
participation of Member States, which resulted in an improved
internal consistency of the data while at the same time the figures
were updated. The updated figures (see paragraph 30) outstand-
ing at 31 December 2002 should read as follows: the total irregu-
lar payments reported since 1971 represent EUR 2 983 million.
Of this sum, EUR 603 million (20 %) have been recovered and
EUR 297 million have been written off (10 %). The amount still
pending represents EUR 2 083 million (70 %). These figures
include also the updates which the Commission received in the
year 2003 and the financial impact of Commission Decision
2003/481/EC (EUR 75 million).

Some Member States do not fulfil their obligation to
III.
report within two months of the end of the quarter in which an
irregularity was detected and/or new information concerning an
irregularity has become known (Regulation (EEC) No 595/91,
Articles 3(1) and 5(1)). Among these Member States, Germany
and Spain account for more than 50 % of the reported irregulari-
ties. The Commission has made Member States aware of this
problem by reporting this in the Commission Report 2002 on
the fight against fraud (paragraph 10.2.2) and discussing the
problem in several meetings as Article 280 Working Group,
Cocolaf and the Working Group ‘Irregularities and Mutual Assis-
tance — Agricultural Products’.

(COM(2001) 254 final of 15 May 2001).

(6)

Including the accounting and recovery aspects.

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As regards inconsistencies, Member States have been informed of
these and were asked to update these cases by sending digital
updates. In meetings of Article 280 Working group, Cocolaf and
the Group ‘Irregularities and Mutual Assistance — Agricultural
Products’ explanation and ‘training’ concerning the ECR (Elec-
tronic Case Registry) database were given to Member States. In
general it can be said that Member States have improved the
reporting of irregularities, but not all obligations of Regulation
(EEC) No 595/91 are completely complied with.

Following the Communication of the Commission entitled
V.
‘Improving the recovery of Community entitlements arising from
direct and shared management of Community expenditure’ of
3 December 2002 (COM(2002) 671 final), the Commission
decided to set up a joint OLAF- Directorate-General for Agricul-
ture Task Force Recovery in order to clear the burden of the past,
i.e. all the irregularity cases prior to 1999 and still open in order
to prepare a decision on whether the Community or the Member
State bears the financial consequences.

As regards discrepancies, the Commission will continue its efforts
to oblige Member States to respect all provisions of Regulation
(EEC) No 595/91 in order to receive within the delays provided
for fully reliable data which contain homogeneous information
from all Member States.

The updated rate of recovery was established at 20,2 % in

IV.
May 2004 (see paragraph 30).

The Commission is fully aware of the fact that the recovery rate
in Member States is not optimal and has undertaken to improve
it, in particular with the creation of the Task Force Recovery (see
also answer to paragraph V).

Paying agencies and administrative bodies in charge of the recov-
ery process in some Member States (Italy and Greece) have always
claimed that they had to wait for the outcome of judicial criminal
procedures before proceeding with the recovery, whereas the
choice of a recovery process through a civil or administrative pro-
cedure is in some cases possible and does not preclude the launch-
ing of a parallel criminal judicial procedure.

Consequently, the initial choice of the Member State (administra-
tive procedure, civil procedure, criminal procedure) will have con-
sequences for the recovery delay. For a limited number of Mem-
ber States, administrative recovery procedures can be launched
only after a final decision in the criminal judicial procedure if any,
bearing in mind that the latter might take 15 years or more.

In Italy, for the pre-1995 cases, 46 % were subject to a criminal
procedure whereas this percentage represented 18 % only for the
cases posterior to 1995, which could be explained by the Mem-
ber States deciding to take the necessary administrative steps as
early as possible and as soon as there was a notification of the
irregularity.

As regards the Court’s observation on the absence of adequate cri-
teria for deciding whether sums written off should be charged to
the Member States or borne by the Community, the Commission
wishes to point out that it has developed, throughout time and on
account of the acquired experience applied, four guiding prin-
ciples and a number of procedural criteria documented in July
2002 (see also paragraph 44).

Since the creation of the Task Force Recovery in 2003, the Com-
mission services have drawn up a list of detailed criteria with
which all the cases are audited in order to have the amounts not
recovered charged either to the Community or the Member State.

Following the allocation of responsibilities stated in
VI.
Annex 2 to Commission Document SEC(95) 249 dated 10 Feb-
ruary 1995, UCLAF/OLAF was to receive all communications
notified by Member States under Council Regulation (EEC)
No 595/91 and was responsible for the analysis and follow-up of
the cases in question, including input of the data concerned into
the irregularity database.

OLAF responsibility in matters of recovery action related to cases
of fraud and irregularity includes the production of summary
notes for each case containing a résumé of the procedures per-
formed and the reasoning behind the proposals for possible
financial correction within the clearance-of-accounts procedure
undertaken under the responsibility of the Directorate-General for
Agriculture as Authorising Officer. The clearance procedure is
conducted by the Directorate-General
for Agriculture, but
throughout its different steps, this DG is assisted by OLAF. See
also paragraph IX.

The Commission always draws the legal consequences for the
fraud proofing and control capability of the existing CAP regula-
tions, taking on board in particular the follow-up recommenda-
tions of the Office.

In shared management, the Member State responsible is in direct
contact with the debtors. The Commission is not in a position to
write off debts. According to Regulation (EC) No 1258/1999 the
Commission is legally obliged to exclude all expenditure from
Community financing where that expenditure has not been
executed in compliance with Community rules. Accepting com-
promise settlements and/or partial payments should be assessed
on a case-by-case approach on the basis of national law and in
conjunction with the criteria as laid down in Article 8 of Regula-
tion (EC) No 1258/1999.

The Commission considers that the allocation of responsibilities
between OLAF and the Directorate-General for Agriculture has
been clearly defined: according to Annex 2 to the Communica-
tion of the Commission SEC(95) 249, OLAF is responsible in
matters of recovery on reported irregularities. Any decision to
write off irrecoverable amounts has to be taken by the Commis-
sion via the EAGGF clearance-of-accounts procedure that is con-
ducted by the Directorate-General for Agriculture, in which OLAF
assists throughout its different steps.

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Council Regulation (EC) No 1469/95 established, in the
VII.
field of EAGGF Guarantee, a system for identifying economic
operators who present a high risk for the Community Budget
through a communication system via the Commission. After
eight years of application of this Regulation, it appears that the
number of communications is rather limited if not weak.

The Commission has extensively discussed the matter in the
framework of the Irregularities and Mutual Assistance/Agriculture
products group and is committed to presenting a second report
to the European Parliament and to the Council containing com-
prehensive assessment of the blacklist Regulation and suggested
options for action.

VIII.
There is a difference between the amounts contained in
Table 105 (receivable which is certain and not subject to any con-
dition, receivable of fixed amount expressed precisely in cash
terms, receivable due and not subject to any payment time) for
the EAGGF financial exercise and the amounts embodied in the
ECR database (amount of quarterly reported irregularities for one
particular term, which can be at that stage mere estimates subject
to subsequent refinements).

The Commission has asked the Member States to undertake a ten-
tative reconciliation of the ECR database with data of Table 105,
bearing in mind that both sets of data will never coincide. Until
now, the first priority was to improve the quality of the data. The
data in the ECR database has now reached a level of reliability
where it will be possible to compare the data.

Finally, regarding the suggested abolition of the black list, the
Commission, while sharing the view of the Court that the system
does not work well, thinks there is room for improvement of the
scheme and would rather see the application of the tool by the
Member States being improved, than simply abolished. There is
certainly room for improvement, and the mere existence of the
regulation is designed to have a preventive impact which, admit-
tedly, diminishes if not effectively applied. In this context, it is
worth pointing out that clearance of accounts started to system-
atically include aspects regarding the application of the black list
in its audits.

INTRODUCTION

4.
During 2003, the Commission updated the figures for the
cumulative total of irregular CAP payments. The updated figures
are (see paragraph 30):

— irregularities notified after payment: EUR 2 983 million;

— amount recovered from claimants: EUR 603 million;

— amount written off against EAGGF: EUR 153 million;

— amount charged to Member States: EUR 144 million;

— amount to be recovered: EUR 2 083 million.

IX.
Member States should shift in the near future to the elec-
tronic format for reporting of irregularities. The electronic format
will increase the data quality and the on time reporting of irregu-
larities and will avoid misunderstandings and misinterpretations.

ANALYSIS

The Commission is currently assisting Member States in this
respect and is also considering an increase of the threshold from
EUR 4 000 to 10 000 in order to reduce dataflow and focus on
the most important cases.

The Commission has undertaken to bring forward draft propos-
als to modify Council Regulation (EEC) No 595/91 and Council
Regulation (EC) No 1258/1999 to seek to remedy the weaknesses
in reporting, recovery and write off of irregular CAP payments.

9.
At the beginning of May 2004, the amount of irregular
payments notified since 1971 stood at EUR 2 983 million while
the amount to be recovered represented EUR 2 083 million. The
updated percentage refered to by the Court represented therefore
30 %. (The quality and reliability of the data has improved during
the year 2003 due to the quality checks, audits of the Task Force
Recovery and feedback from Member States). This figure includes
all updates of the year 2003 and the financial impact of Commis-
sion Decision 2003/481/EC.

11.
During 2003, the Commission updated its figures for
debts prior to 1994. The updated percentage is 22,4 % (see
paragraph 30).

The Commission considers that the allocation of responsibilities
between OLAF and the Directorate-General for Agriculture has
been clearly defined: according to Annex 2 to the Communica-
tion of the Commission SEC(95) 249, OLAF is responsible in
matters of recovery on reported irregularities. Any decision to
write off irrecoverable amounts has to be taken by the Commis-
sion via the EAGGF clearance-of-accounts procedure that is con-
ducted by the Directorate-General for Agriculture, in which OLAF
assists throughout its different steps.

13.
The latest CAP reforms have been conducted and adopted
in particular with the aim of minimising the risks of fraud and
other irregularities.

The IACS (Integrated Administration and Control System), which
is acknowledged by the Court as having a major impact on the
prevention of irregular payments, is now covering, directly or
indirectly, 80 % of CAP expenditure.

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15.(b)
mission Report 2002 on the fight against fraud.

Additional developments are to be found in the Com-

use this system as from 2002. For 2003, 30 % of the cases pro-
vide information concerning penalties and/or interest.

The Commission shares the view that Member States
17.
interpret differently the notion of primary administrative or judi-
cial findings of facts; however, it has defined, on various occa-
sions, in different documents and interpretative notes what is to
be meant by this notion while a definition is given in the context
of the black list in Commission Regulation (EC) No 745/96,
Article 1(2) (1).

27.
The Commission is aware of the problem of inconsisten-
cies of definition and coverage in the information supplied and
has already remarked on this problem (see Commission 2002
Report on the fight against fraud, paragraph 11.2). In addition,
OLAF also informed Member States in several meetings that the
non-reporting of the CN code (product description) would hinder
the Commission in producing analyses.

Germany and Spain together account for more than 50 %
21.
of the reported irregularities and these two Member States seldom
report on time. The Commission has informed Member States by
discussing this problem in meetings as Cocolaf and Working
Group ‘Irregularities and Mutual Assistance — Agricultural Prod-
ucts’ and by publishing the relevant figures in the Commission
Report 2002 on the fight against fraud (paragraph 10.2.2).

The Commission has made Member States aware of the
22.
fact that the time between the discovery and the reporting of an
irregularity is too long. In annual reports and presentations in
meetings of Coolaf, Member States have been informed that
the reporting time could have an impact on the determination of
the negligence of a Member State (see Commission Report 2002
on the fight against fraud, point 10.5).

Almost 90 % of irregularities are notified within two years of their
discovery.

The Task Force Recovery (see paragraph V) in the course
24.
of its audit also found out that Italy has not yet notified the writ-
ing off of certain debts in spite of court orders establishing that
there had not been any fraud committed.

28.
The Commission has made substantial efforts to improve
the quality of information supplied by Member States in the ini-
tial communication as well as in all updates on financial impact.
In the framework of the Task Force Recovery, a first attempt has
been made to audit the completeness and reliability of the com-
munications and its updates by the Member States.

29.
Efforts have been made to tackle the problem of discrep-
ancies between Member State data and the ECR. Reasons for dis-
crepancies can be due to the lack of human resources in order to
monitor on a regular basis the constant flow of data provided by
Member States. The number of staff has meanwhile been
increased. The module has been translated into all languages of
EU and a manual has been written.

30.
The Commission asked Member States to verify the fig-
ures of draft Commission Report 2002 on the fight against fraud.
Feedback of Member States was taken into account before the
final version of the Commission Report 2002 on the fight against
fraud was released; therefore, the figures in this Report have the
agreement of Member States.

Cases and communications have been updated during the year
2003 on the basis of:

— quality checks by OLAF,

The necessary corrections have been introduced in the ECR data-
base after July 2003.

— findings of Member States concerning the data in the ECR

database,

25.
OLAF has informed Member States in several meetings
that some cases still had a pending financial state, i.e. amounts
were still to be calculated. Member States were asked to update
these cases as soon as (new) information became available (see
also point 28).

— updates of old cases by Member States,

— Commission Decision 2003/481/EC,

26.
The Commission introduced an electronic reporting sys-
tem in 2001. At the same time specific fields relating to ‘Interest’
and ‘Penalties’ were introduced. Some Member States started to

— audit findings by the Task Force Recovery,

— audit findings by the Court of Auditors.

(1)

‘The preliminary administrative or judicial report shall mean the first written
assessment, even if only internal, by a competent administrative or judicial
authority, concluding on the basis of concrete facts that an irregularity has been
committed, deliberately or through gross negligence, without prejudice to the
possibility of this conclusion being revised or withdrawn subsequently on the
basis of developments in the administrative or judicial procedure.’ The same
definition has been provided in different working documents among which the
document ‘Obligations to notify irregularities: practical arrangements’ discussed
with Member States in the XIXth meeting of Cocolaf on 11 April 2002.

Figures based on the data available in the ECR database on
2 May 2004 are in line with the figures as produced for the Com-
mission Report 2002 on the fight against fraud. However, it was
already mentioned in this Report that the ‘figures must be handled
with great caution’ (p. 41) as ‘there is no certainty that the total
number of communications received represents the total frauds
and irregularities detected by Member States’ (p. 44).

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the updates during 2003 and Commission
The effects of
Decision 2003/481/EC (EUR 75 million) have been taken into
account.

operation prudently thanks to specific, clear-cut criteria and
transparent legal procedure in particular based on:

The Commission recognises that there are deficiencies in
31.
the link between ECR and CMS (Case Management System). A
request for a change in the ECR database was made in September
2003. An extra field will be added to the module to create a link
between CMS and the ECR database, making it also possible to
access the information on the financial recovery situation pro-
vided by the Member State.

32.(b) and (c)
closed.

A large number of the cases were already

36.
The Commission considers that the allocation of respon-
sibilities between OLAF and the Directorate-General for Agricul-
ture has been clearly defined: According to Annex 2 to the Com-
munication of the Commission SEC(95) 249, OLAF is responsible
in matters of recovery on reported irregularities. Any decision to
write off irrecoverable amounts has to be taken by the Commis-
sion via the EAGGF clearance-of-accounts procedure that is con-
ducted by the Directorate-General for Agriculture, in which OLAF
assists throughout its different steps.

37.
In the absence of total recovery, the financial conse-
quences of the irregularities shall be borne by the Member State
in the event of irregularities or negligence attributable to admin-
istrative authorities or other bodies of the Member States. In other
cases the burden shall be borne by the Community budget. The
Commission has defined as early as 1996 the following guide-
line (1) that the recovery procedure should be launched as soon
as possible after the irregularity had been detected and should be
completed within four years after the date of the first communi-
cation of fraud or irregularity. In the opposite case, the Member
State may be required to show that there was no negligence.

The four-year period is extended to eight years in case of judicial
procedures, on the condition that the Commission is fully
informed of the recovery procedure.

39.
The Commission has identified a certain number of prob-
lems in this context. In its Communication COM(202) 671 final
of 3 December 2002, the Commission recommended the initia-
tion of corrective measures, namely:

— setting up of the Task Force Recovery to speed up the treat-

ment of the backlog,

— modifying Regulation (EC) No 1258/1999 and therefore
Regulation (EEC) No 595/91 to prevent new backlogs in the
future.

Such provisions on writing off irrecoverable Community entitle-
ments should provide the regulatory basis to carry out this

(1) Document VI/5330/97.

— annual global communications by Member States regarding

the stage of their national recovery procedures,

— attentive scrutiny of the files examined by the Task Force

Recovery,

— approved criteria to determine whether the non-recovered
amounts should be charged to the Community Budget or to
the Member State.

40.
During 2003, the Commission updated the cumulative
recovery rate as at the end of 2002 at 20,2 % of the global finan-
cial impact of cases detected after payment (effectively recovered
by the Member States).

clearance-of-accounts procedure,

Through the
further
EUR 144 million (4,8 %) has been charged to the Member States
and EUR 153 million (5,1 %) to the EAGGF budget (see paragraph
4).

a

41.
The Commission agrees that the recovery rate is low but
this assessment can be explained by the fact that, in matters of
shared management, recovery procedures are not uniform nor
harmonised in Member States and this is an unexpected effect of
the assimilation principle posed by Article 280 of the Treaty
which jeopardises the uniformity of implementation of Commu-
nity legislation because recovery of Community monies follows
the national rules.

However, the Commission has undertaken to bring forward pro-
posals to modify Regulation (EC) No 1258/1999 and Regulation
(EEC) No 595/91 in order to improve the weaknesses of the actual
situation (see paragraph 39).

(a)

In the absence of total recovery, the financial consequences
of the irregularities shall be borne by the Member State in the
event of irregularities or negligence attributable to adminis-
trative authorities or other bodies of the Member States. In
other cases the burden shall be borne by the Community
budget.

The case which the Court refers to was notified on 29 May
1991 and updated in 1997. The Commission wishes to point
out that this case was not included in the TFR audit selection
on account of the wrong amount reported in ECR.

(b) The objective of the amendment of Regulation (EC) No
1258/1999 and Regulation (EEC) No 595/91 is, inter alia, to
address the shortcomings pointed out by the Court by mak-
ing Member Sates more responsible and by providing ex post
controls in the clearance-of-accounts framework.

(c) According to Article 280(2) of the EC Treaty ‘Member States
shall take the same measures to counter fraud affecting the
financial interests of the Community as they take to counter
interests’. There is a
fraud affecting their own financial

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constant case law of the ECJ which stipulates that the rules
applicable in cases where there are violations to Community
law cannot be less favourable than the rules prevailing in
cases where there are violations to national law. However
this does not amount to conferring a preferential status on
CAP debts.

— the recovery procedure must be started as soon as possible
after the irregularity has been detected and should be com-
pleted within four years of the fraud or irregularity first being
reported. If not, the Member State must show there has been
no negligence.

(d) As regards the outcome of the combined UCLAF/German
1992 investigation, this case will be dealt with in the
clearance-of-accounts procedure.

— the treatment of individual cases must be discussed in detail

with all the Member States concerned.

(f) According to Regulation (EC) No 1258/1999 the Commis-
sion is legally obliged to exclude all expenditure from Com-
munity financing where that expenditure has not been
executed in compliance with Community rules. Accepting
transactions or partial payments are conditions to be assessed
on a case-by-case approach on the basis of national law and
in conjunction with the criteria as laid down in Article 8 of
Regulation (EC) No 1258/1999.

42.
The Commission has undertaken to bring forward pro-
posals to modify Regulation (EC) No 1258/1999 and Regulation
(EEC) No 595/91, inter alia, to address the shortcomings pointed
out by the Court by making Member States more responsible and
by providing ex post controls in the clearance-of-accounts
framework.

43.
During 2003, the Commission has updated the figures
on amounts written off as at the end of 2002. The updated fig-
ures are:

— charged to Member States: EUR 144 million,

— charged to EAGGF: EUR 153 million.

The Commission shares the concern of the Court about the man-
agement and recovery of EAGGF debt. It points to the efforts
made through the reform of the clearance of accounts in 1996
together with the developments discussed in paragraphs 39 and
41 of the replies.

These cases will be dealt with in the clearance-of-accounts
procedure.

The Commission has applied four guiding principles and
44.
a number of procedural criteria documented in July 2002. As
regards the guiding principles:

— if the whole amount cannot be recovered for objective rea-
sons and the Member State has done all it can to recover the
amount on time without displaying any negligence, the unre-
covered amounts are charged to the Community budget.

— in all other cases, where the irregularity is attributed to the
Member State or where the recovery procedures have not
been conducted with all the diligence required, the amounts
in question are charged to defaulting Member States.

As regards the procedural criteria, the questions to be answered
are:

— Has the recovery procedure started? Can it be completed

within a reasonable period?

— Has the recovery procedure not been completed for reasons

of force majeure or for other compelling reasons?

— Was recovery not initiated because of the negligence of the

Member State or its failure to take action?

Since the creation of the Task Force Recovery, the Commission
services have refined the criteria and have drawn up a list of cri-
teria upon which all files are audited in order to have a decision
on whether the amounts at stake are charged to the Community
budget or to the Member State. This audit concerns all outstand-
ing files up to 31 December 1998.

48.
There is no link between the financial corrections based
on a system analysis and the individual cases of fraud for which
amounts have not yet been recovered. Article 8(2) of Regulation
(EC) No 1258/1999 and Article 5(2) of Regulation (EEC) No
595/91 provide clear procedural rules to be followed for the
treatment of specific cases of fraud and irregularities.

49.
As the Court mentioned it in an earlier report (1), the
Commission undertook in 1999 a review of all the pre-1995
cases still pending in order to take a decision on whether to charge
them to the Community or to the Member States. The exercise
was limited to six Member States (2), on account of the poor qual-
ity of the available data and also taking into consideration the lim-
ited human resources available.

50.
Following the Commission decision mentioned by the
Court, all cases involved were updated in the ECR database. This
now contains the number of the Commission Decision, the
authority who should bear the loss and the amounts involved.

(1) Special Report No 22/2000 on evaluation of the reformed clearance-of-accounts

procedure (OJ C 69, 2.3.2001).

(2) Belgium, Greece, Spain, Ireland, the Netherlands, Portugal.

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The distribution of the costs of writes off between the Commu-
nitiy budget and Member States budget in the June 2003 decision
should not be taken as a precedent for future decisions. In respect
of Italy, which appeared to be the largest debtor, due to the large
number of Italian cases and the poor cooperation of the Member
State, it was decided in 1999 to concentrate on the cases of other
Member States and to postpone the scrutiny of Italian files.

The Commission set up a Task Force Recovery in 2003
51.
in order to clear all the pending irregularity cases prior to 1999.
In the framework of the audits carried out by the Task Force
Recovery throughout 2003, the remaining pre-1995 files above
a given threshold (EUR 500 000) were examined for nine Mem-
ber States (1). In total, 443 cases were examined in the course of
this audit, among them 343 cases for Italy. The related clearance-
of-accounts procedure for the bulk of examined files is ongoing.

52.(a) and (b)
The Commission has taken the necessary steps
to remedy this situation. Since July 2003 the number of the Com-
mission Decision and the amounts involved are stored in the digi-
tal file and there is a reference to the Commission Decision in the
paper file. A change request has been formulated to create an
extra field in the ECR database in which the Commission Deci-
sion number can be saved. Since March 2004, the ECR database
contains a specific field in which the Commission decisions are
listed.

year 2003 the first basic analyses on the basis of the data of ECR
database have been presented to Member States in the framework
of the Working Group ‘Irregularities and Mutual Assistance —
Agricultural Products’.

The developments discussed in paragraphs 39 and 41 of the
replies should facilitate and speed up the recovery process.

57.
The Commission endorses the Court’s statement on the
weaknesses of the ECR system and has performed some analyses
in which the use and the frequency of codes were examined. The
Commission has started a discussion with the Member States on
the simplification of the reporting system.

The Commission has asked Member States to update
58.
these cases during the Article 280 Working Group meeting of
12 March 2003 and Working Group ‘Irregularities and Mutual
Assistance — Agricultural Products’ of 11 March 2003 (see
paragraph 25).

59.
The Commission uses the data for operational and recov-
ery follow-up purposes as well as strategic intelligence purposes.
This is however done by analysts of OLAF itself, therefore no
direct link between the ECR module and (other) users can be
found.

The 1993 clearance-of-accounts decision was proposed in 1997,
and UCLAF was responsible for the corrections proposed for
inadequate follow up of irregularities. Due to the old clearance-
of-accounts procedure, cases were not properly documented.
However, these procedures are clear now.

Most of the time, data is prepared by OLAF staff on request of
other users inside the Community services or outside in Member
States such as Austria and Germany, which are using the data to
prepare Regulation (EEC) No 4045/89 controls.

(c)
The Commission informs Member States of OLAF’s rec-
ommendations, which are only mere proposals at that stage, the
final decision being taken by the College. It is not excluded that
some Member States already ‘anticipate’ these recommendations
and take them for granted.

53.
The Commission considers that the allocation of respon-
sibilities between OLAF and the Directorate-General for Agricul-
ture has been clearly defined: According to Annex 2 to the Com-
munication of the Commission SEC(95) 249, OLAF is responsible
in matters of recovery on reported irregularities. Any decision to
write off irrecoverable amounts has to be taken by the Commis-
sion via the EAGGF clearance-of-accounts procedure that is con-
ducted by the Directorate-General for Agriculture, in which OLAF
assists throughout its different steps.

The competent Commission service (OLAF’s intelligence
55.
units) had to improve the quality of the data before it could be
used for analyses and intelligence-driven investigations. In the

(1) Belgium, Germany, Greece, France, Italy, Netherlands, Spain, Portugal, United

Kingdom.

60.
The Commission services have presented figures and
analyses of the ECR modules in several meetings with the Mem-
ber States.

62.
The competent authorities of Member States are faced
with some delicate legal interpretation of questions and this not-
withstanding the guidance provided by the Commission for a uni-
form interpretation of the black list tool. Among the difficulties
put forward by Member States are:

— the concept of

is a legal concept
unknown in certain Member States in civil law, having in
some Member States more affinity with the criminal process,

‘serious negligence’

— the absence of an explicit clause which regulates liability in

the case of a consortium or associated operators,

— the risk of having to pay for damages for a blacklisting that
was ultimately overturned, which could have serious finan-
cial consequences for the Member State involved.

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Certifying Bodies have been provided with
66. and 67.
detailed instructions in the framework of an ad hoc expert meet-
ing in 2002 focused on the checks to be made with Table 105.
Table 105 aims at:

— overseeing and control of amounts of liabilities held by

Member States,

— reflection on the level of liabilities,

— a tentative reconciliation of the data of Table 105 and the
Paying Agencies’ debtors’ ledgers, and Table 104 with the
ECR data base managed by OLAF.

The Commission services are giving increased attention to this
question through a scrutiny of the annual reports of the Certifi-
cation Bodies.

The Commission informs Member States of OLAF’s
67.
recommendations, which are only mere proposals at that stage,
the final decision being taken by the College. It is not excluded
that some Member States already ‘anticipate’ these recommenda-
tions and take them for granted. During the clearance-of-accounts
procedure, the Commission has very substantial powers; firstly, it
is responsible for auditing and evaluating the Member State’s
management of EAGGF Guarantee expenditure, and secondly, it
is the institution which unilaterally decides which amounts to
refuse for financing.

68.
There is a difference between the amounts contained in
Table 105 (receivable which is certain and not subject to any con-
dition, receivable of fixed amount expressed precisely in cash
terms, receivable due and not subject to any payment time) for
the EAGGF financial exercise and the amounts embodied in the
ECR database (amount of quarterly reported irregularities for one
particular term, which can be at that stage mere estimates subject
to subsequent refinements).

The Commission has asked Members States to undertake a ten-
tative reconciliation of the ECR database with the data of Table
105, bearing in mind that both sets of data will never coincide.
Until now, the first priority was to improve the quality of the
data. The data in the ECR database has now reached a level of reli-
ability where it will be possible to compare the data.

CONCLUSIONS

70.
The Commission shares the concern of the Court about
the management and recovery of EAGGF debt. In 2000, on the
initiative of the Commission and based on the same observations
as the Court, proposals were discussed with Member States to
remedy the situation of the ‘pending’ cases. In 2003, following the
creation of the Task Force Recovery after the Communication of
the Commission of 3 December 2002, files representing more
than EUR 500 000 notified before 1 January 1999 have been
under scrutiny. The remaining cases will be dealt with in the near
future.

See also answer to paragraphs II and 4 as regards the updated
figures.

71.(a)
The requirements of the Commission services are very
well known to Member States authorities; but due to national
communication and cooperation problems these requirements
are not reflected in the communication and updating of
irregularities.

(b)
See answer to points 25. to 27. To encourage the com-
munication of increasingly precise and up-to-date information,
the Commission is redoubling its efforts regarding the gathering
and analysis of data sent in by the Member States.

(c)
The Commission shares the concern of the Court about
the management and recovery of EAGGF debt, but believes that
things are gradually improving.

(d)
The creation of the Task Force Recovery in 2003 should
enable the Commission to clear up the backlog. The Commission
has undertaken to bring forward proposals to modify Regulation
(EC) No 1258/1999 and Regulation (EEC) No 595/91 to prevent
having a similar situation in the future.

(e)
The Commission applied four guiding principles and a
number of procedural criteria documented in July 2002. They are
detailed in answer to point 44. Since the creation of the Task
Force Recovery, the Commission services have refined a list of cri-
teria upon which all files are audited in order to have a decision
on whether the amounts at stake are charged to the Community
budget or to the Member State. This audit concerns all outstand-
ing files up to 31 December 1998.

(f)
The Commission considers that the allocation of respon-
sibilities between OLAF and the Directorate-General for Agricul-
ture has been clearly defined: according to Annex 2 to the Com-
munication of the Commission SEC(95) 249, OLAF is responsible
in matters of recovery on reported irregularities. Any decision to
write off irrecoverable amounts has to be taken by the Commis-
sion via the EAGGF clearance-of-accounts procedure that is con-
ducted by the Directorate-General for Agriculture, in which OLAF
assists throughout its different steps.

Detailed instructions on the audit of the debtors’ ledgers
72.
have been provided to the Certifying Bodies. The Commission
will increase its efforts in order to reach a better understanding of
the problem.

73.
The Commission has extensively discussed the applica-
tion of the Black List in the framework of the Working Group
‘Irregularities and Mutual Assistance — Agricultural Products’ and
is committed to presenting a second report to the European Par-
liament and to the Council containing a comprehensive assess-
ment of the black list Regulation and suggested options for action.

RECOMMENDATIONS

74.
The Commission takes note of the recommendations of
the Court and considers that some of these recommendations of
the Court address primarily Member States. Moreover the

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Commission estimates that, in undertaking its tasks, it should pri-
marily focus on the appraisal of the efficiency and adequacy of
adopted and executed measures. Some of the changes welcomed
by the Court are already in place.

— The quality of the available data related to CAP irregular pay-

ments should be improved.

76.

— The recovery of irregulary paid amounts should be speeded
up by the introduction by Member States of efficient mea-
sures. The Commission has undertaken to bring forward pro-
posals to this effect (see paragraphs 39 and 41).

— The Commission has undertaken to put in place criteria in
order to decide on the financial consequences of irregulari-
ties as to whether to charge the Community budget or the
Member State.

— The Commission considers that the allocation of responsi-
bilities between OLAF and the Directorate-General for Agri-
culture has been clearly defined: according to Annex 2 to the
Communication of the Commission SEC(95) 249, OLAF is
responsible in matters of recovery on reported irregularities.
Any decision to write off irrecoverable amounts has to be
taken by the Commission via the EAGGF clearance-of-
accounts procedure that is conducted by the Directorate-
General for Agriculture, in which OLAF assists throughout
its different steps.

— The Commission takes into consideration the antifraud
aspect in every piece of its CAP legislation through the
so-called fraud-proofing examination of the draft regulations.

75.

— The question of the act generating the obligation to
communicate (preliminary administrative or judicial
report) is defined in Article 1(2) of Regulation (EC)
No 745/96. and has been widely discussed with Mem-
ber States (see reply to paragraph 17).

— The Commission is currently examining the question of

increasing the threshold to EUR 10 000.

— The Commission has already performed some analyses
in which the use and the frequency of codes were exam-
ined. A paper concerning the type of irregularity and the
qualification by Member States has been produced and
will be used in a discussion between the Commission
and Member States to simplify the number of codes. The
same procedure will be followed for other codes.

— Efforts have been made to tackle the problem of discrep-
ancies between Member State data and the ECR database.

— The Commission has invited Member States to proceed
to a tentative reconciliation of OLAF ECR/595 data and
the debtors’ ledgers data.

— The Commission has undertaken to bring forward a
proposal
(EC)
No 1258/1999 which aims at enhancing the efficiency
of the recovery process.

of modification

to Regulation

— The offset of irregular payments against other EAGGF
payments is legal and common in many Member States.
The Commission will seek to promote this practice in all
paying agencies.

— The Commission would like to recall the principle of
assimilation enshrined in Article 280 of the Treaty. In
this context, it wishes to add that there is a constant
caselaw of the ECJ which stipulates that the rules appli-
cable in cases where there are violations to Community
law cannot be less favourable than the rules applicable
in cases where there are violations to national law. How-
ever this does not amount to conferring a preferential
status to CAP debts.

77.
The Commission applied four guiding principles and a
number of procedural criteria documented in July 2002. They are
detailed in answer to point 44. The Commission has foreseen to
take action in this field.

The Commission considers that the allocation of respon-
78.
sibilities between OLAF and the Directorate-General for Agricul-
ture has been clearly defined: According to Annex 2 to the Com-
munication of the Commission SEC(95) 249, OLAF is responsible
in matters of recovery on reported irregularities. Any decision to
write off irrecoverable amounts has to be taken by the Commis-
sion via the EAGGF clearance-of-accounts procedure that is con-
ducted by the Directorate-General for Agriculture, in which OLAF
assists throughout its different steps.

79.
The Commission has started this process. The Commis-
sion Report 2002 on the fight against fraud can be considered as
the first report in which first steps were made on lessons learned.

80.
The Commission has extensively discussed the applica-
tion of the Black List in the framework of the Working Group
‘Irregularities and Mutual Assistance — Agricultural Products’ and
is committed to presenting a second report to the European Par-
liament and to the Council containing comprehensive assessment
of the black list Regulation and suggested options for action (see
also answer in paragraph IX).