Report from the Commission to the European Parliament and the Council - Protection of the Communities’ financial interests - Fight against fraud - Annual report 2005 {SEC(2006)911} {SEC(2006)912}
Date: 2006-07-12
Institutions: European Commission
Subjects: Community budget, EU Member State, European Anti-fraud Office, activity report, fraud, fraud against the EU

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 12.7.2006 
COM(2006) 378 final 

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 

Protection of the Communities’ financial interests – Fight against fraud – Annual report 
2005 

{SEC(2006)911} 
{SEC(2006)912} 

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   EN 

 
 
 
  
TABLE OF CONTENTS 

Introduction ................................................................................................................................ 4 

1. 

1.1. 

1.2. 

1.3. 

1.4. 

1.5. 

2. 

2.1. 

2.2. 

2.3. 

2.4. 

3. 

Assessment of the 2001-05 overall strategic approach for the protection of the 
European Communities’ financial interests ................................................................. 5 

An overall legislative anti-fraud policy........................................................................ 5 

A new culture of operational cooperation.................................................................... 8 

Preventing and combating corruption in the institutions ............................................. 9 

Enhancement of the criminal judicial dimension....................................................... 10 

Conclusion.................................................................................................................. 11 

Results of the fight against fraud: statistics concerning fraud and other  
irregularities reported by the Member States under sectoral regulations................... 12 

Traditional own resources .......................................................................................... 13 

Agricultural expenditure (EAGGF Guarantee).......................................................... 14 

Structural measures .................................................................................................... 14 

Pre-accession funds.................................................................................................... 15 

Measures taken by the Member States and the Commission in 2005........................ 16 

3.1. 

Measures taken by the Member States....................................................................... 16 

3.1.1.  New horizontal measures ........................................................................................... 16 

3.1.2.  New measures relating to Community own resources............................................... 17 

3.1.3.  New measures relating to agricultural expenditure.................................................... 17 

3.1.4.  New measures relating to structural measures ........................................................... 18 

3.2. 

3.3. 

Operational measures adopted by the Commission to fight fraud ............................. 18 

Complementary measures for the protection of the Communities’ financial interests
.................................................................................................................................... 19 

3.3.1.  State of play with the ratification by Member States of the Convention of 

26July 1995 on the protection of the European Communities’ financial  
interests and its protocols ........................................................................................... 19 

3.3.2.  The Customs Information System (CIS)and the ratification of the Convention  
on the use of information technology for customs purposes and of its protocol 
creating a Customs File Identification Database (FIDE) ........................................... 20 

3.3.3.  The Philip Morris International Agreement............................................................... 21 

4. 

Recovery .................................................................................................................... 21 

4.1. 

National recovery procedures involving civil or administrative proceedings ........... 21 

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4.2. 

4.3. 

4.4. 

5. 

5.1. 

5.2. 

Recovery by the institutions....................................................................................... 25 

The Recovery Task Force and the EAGGF Guarantee Section................................. 26 

Reform of the system of financial monitoring of irregularities in agricultural policy28 

Procedures for certifying the accounts....................................................................... 28 

Roadmap for a positive statement of assurance ......................................................... 28 

Procedure for certifying proper implementation of public expenditure in the Member 
States .......................................................................................................................... 29 

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INTRODUCTION 

Protection  of  the  Communities’  financial  interests  and  the  fight  against  fraud  is  an 
area  in  which  responsibility  is  shared  between  the  Community  and  the  Member 
States. Each year the Commission, in cooperation with the Member States, produces 
a report setting out the new measures taken to satisfy these obligations, in accordance 
with Article 280 of the EC Treaty. This report is sent to the European Parliament and 
the Council and is published. 

In  the  first  section  of  the  report,  the  Commission  provides  an  assessment  of  its 
five-year  (2001-05)  overall  strategic  approach  for 
the 
Communities’ financial interests. Despite the many obstacles, the overall result of the 
implementation of the objectives and actions programmed is satisfactory. 

the  protection  of 

The  second  section  contains  a  statistical  summary  of  the  cases  of  irregularities 
reported under the sectoral regulations. 

The third section contains an illustrative selection of the measures taken in 2005 by 
the  Member  States  and,  for  the  Commission,  a  description  of  the  efforts  made  to 
improve the effectiveness of the European Anti-Fraud Office (OLAF). 

It  was  agreed  with  the  Member  States  to  present  two  specific  themes  in  the  fourth 
and  fifth  sections  of  the  report.  The  fourth  section  sets  out  the  measures  taken  to 
improve  recovery  of  sums  not  collected  or  paid  unduly.  This  is  the  organised 
financial  monitoring  that  is  the  only  way  of  remedying  the  damage  caused  to  the 
European budget by fraud and other irregularities. 

The  fifth  and  final  section  deals  with  the  question  of  the  certification  of 
Member States’  accounts.  The  majority  of  the  European  budget  is  managed  in 
cooperation  with  the  Member  States.  This  point  includes  a  brief  comparison  of  the 
control  principles  and  standards  and  of  the  certification  systems  (where  they  exist) 
applied by the Member States. 

The  report  provides  only  a  summary  and  overview  of  the  measures  taken  and  the 
results  achieved  by  the  twenty-five  Member  States.  The  Commission  is  also 
simultaneously publishing two working documents1, one listing the Member States’ 
contributions and the other on statistics for the irregularities notified by the Member 
States. 

Past  years’  reports  and  the  associated  Commission  staff  working  documents  are 
available on the OLAF website2. 

1 
2 

“List of measures taken by the Member States” and “Statistical analysis of irregularities”. 
http://europa.eu.int/comm/anti_fraud/reports/index_en.html. 

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1. 

ASSESSMENT  OF  THE  2001-05  OVERALL  STRATEGIC  APPROACH  FOR  THE 
PROTECTION OF THE EUROPEAN COMMUNITIES’ FINANCIAL INTERESTS 

The  protection  of  the  European  Communities’  financial  interests  depends  on  a 
culture  of  strong  cooperation  between  the  national  and  Community  levels.  The 
Commission’s aim was to put in place an overall strategic approach in this field that 
includes  all  actions  contributing  to  this  common  objective,  in  order  to  ensure 
convergence  between  the  efforts  of  the  national  authorities  and  the  institutions 
involved  in  prevention.  This  includes  operational  activity,  financial  follow-up,  the 
application  of  sanctions,  prevention  and  the  preparation  of  legislation  providing  a 
framework for these activities, whether for the first or third pillar. 

In  its  Overall  Strategic  Approach,  adopted  on  28  June  20003  in  the  context  of  the 
inclusion of Article 280 EC in the Amsterdam Treaty and the creation in 1999 of the 
European  Anti-Fraud  Office  (OLAF),  the  Commission  adopted  its  political  and 
general objectives for the period 2001-05. It identified four main strategic guidelines 
for the protection of the European Communities’ financial interests: 

- an overall legislative anti-fraud policy; 

- a new culture of operational cooperation; 

- an inter-institutional approach to prevent and combat corruption; 

- enhancement of the penal judicial dimension. 

The  implementation  of  this  overall  strategic  approach  was  given  practical  shape  in 
the 2001-034 and 2004-055 Action Plans. 

1.1. 

An overall legislative anti-fraud policy 

The Commission has endeavoured to follow a horizontal and cross-pillar approach to 
anti-fraud  policy,  integrating  all  sectors  in  which  fraud  and  corruption  may  appear. 
Anti-fraud legislation must make provision for follow-up and cooperation, as well as 
prevention and detection. 

In  2001  the  Commission  announced  that  it  was  putting  in  place  an  internal 
Commission “fraud-proofing” mechanism6 to improve the quality of legislation and 
the management of contracts in order to make them more “resistant to fraud”. Since 
2003  an  inter-departmental  group  has  been  identifying  each  year  legislative 
initiatives and model contracts in the process of being drawn up that could present a 
major risk to the Communities’ financial interests. The European Anti-Fraud Office 

3 

4 

5 

6 

Communication from the Commission - Protecting the Communities' financial interests - Fight against 
fraud – For an overall strategic approach (COM(2000) 358 final). 
Communication from the Commission - Protecting the Communities' financial interests - Fight against 
fraud - Action Plan for 2001-2003 (COM(2001) 254 final). 
Communication from the Commission - Protecting the Communities' financial interests - Fight against 
fraud - Action Plan for 2004-2005 (COM(2004)544 final). 
Communication  from  the  Commission  concerning  the  fraud-proofing  of  legislation  and  contract 
management 7 November 2001 (SEC(2001)2029 final). 

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is consulted ahead of the drafting of such documents. During the period 2004-05 the 
Office has examined in all 28 initiatives. 

The introduction of the euro was accompanied throughout the programming period in 
question by numerous measures to combat the counterfeiting of euro coins and notes. 
Among  the  measures  adopted,  the  Commission  enhanced  the  legal  framework  for 
action  and  intervention,  as  well  as  the  framework  for  international  cooperation  on 
specific matters. 

In  a  2002  Communication7  focusing  on  improving  the  recovery  of  unduly  paid 
agricultural funds prior to 1999, the Commission announced  the  establishment  of  a 
Recovery Task Force (RTF) to clarify the situation of unrecovered debts and to draw 
up decisions on financial liability under the formal accounts-clearance procedure in 
the EAGGF Guarantee Section (see point 4.2). 

The  new  Financial  Regulation8,  which  came  into  force  in  2003,  enhanced 
considerably the protection of the Communities’ financial interests: 

– 

– 

– 

It makes for more effective recovery. 

It  makes  provision  for  a  move  from  cash-based  to  accrual  accounting.  Since 
2005  the  Commission  has  therefore  been  in  compliance  with  the  strictest 
international accounting standards, has improved its day-to-day management of 
funds and has reduced to a minimum the risk of errors or irregularities. 

It  provides  for  an  information  system  that  makes  it  possible  to  exclude  from 
public  contracts  by  means  of  an  administrative  decision  unreliable  candidates 
and  tenderers  with  criminal  convictions  or  who  provide  misleading  or 
fraudulent information. A similar mechanism was adopted under the Directive 
on the coordination of procedures for the award of public works contracts9. In 
the context of its Communication on Transparency10, the Commission intends 
to  study  the  possibility  of  making  greater  use  of  the  exclusion  system  and  to 
produce  proposals  in  this  respect  in  the  amended  proposal  concerning  the 
Financial Regulation11.  

7 

8 

9 

10 

11 

Communication of the Commission – Improving the recovery of Community entitlements arising from 
direct and shared management of Community expenditure (COM(2002) 671 final). 
Council  Regulation  (EC,  Euratom)  No  1605/2002  of  25  June  2002  on  the  Financial  Regulation 
applicable to the general budget of the European Communities (OJ L 248, 16.9.2002). 
Directive  2004/18/EC  of  the  European  Parliament  and  of  the  Council  of  31  March  2004  on  the 
coordination of procedures for the award of public works contracts, public supply contracts and public 
service contracts (OJ L 134, 30.4.2004) put into place an information system that makes it possible to 
exclude tenderers with criminal convictions from public contracts. 
Communication  to  the  Commission  from  the  President,  Ms  Wallström,  Mr  Kallas,  Ms  Hübner  and 
Ms Fischer Boel: Proposing the launch of a European Transparency Initiative (SEC(2005)1300). 
The  Commission  adopted  on  18  May  2006  an  amended  proposal  for  a  Council  Regulation  amending 
Regulation (EC, Euratom) No 1605/2002 on the Financial Regulation applicable to the General Budget 
of the European Communities (COM(2006) 213 final). 

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In  2004  the  Commission  adopted  proposals  amending  the  basic  regulations 
governing investigations by OLAF12. The aim of these proposals was, among other 
things,  to  clarify  the  rules  on  information  exchanges  between  the  Office  and 
Community  institutions,  agencies  and  organisations,  and  to  allow  the  Office  to 
concentrate  on  its  operational  priorities  and  to  speed  up  its  investigations,  thereby 
enhancing its effectiveness. The proposals also aimed at strengthening the procedural 
rights  of  those  under  investigation.  On  the  basis  of  these  proposals,  the  European 
Parliament  and  the  Council  called  for  a  complementary  assessment  of  the 
performance of the Office, which the Commission presented in October 200413. The 
Court  of  Auditors  produced  a  special  report  on  the  management  of  the  Office14, 
accompanied  by  several  recommendations.  In  July  200515  the  European  Parliament 
organised  a  public  hearing  on  strengthening  OLAF.  On  this  occasion,  it  was  noted 
that  the  Office’s  organisational  structure,  independent  in  its  investigations  while 
being  integrated  into  the  Commission  from  an  administrative  point  of  view,  does 
indeed work. 

In the light of these developments, the Commission adopted in May 2006 a proposal 
supplementing  the  progress  made  in  its  proposal  of  February  2004,  which  it  has 
replaced  and  which  has  been  withdrawn.  This  proposal  deals  in  particular  with 
governance  and  the  cooperation  between  the  institutions  and  the  Supervisory 
Committee  via  the  latter's  meetings  with  the  representatives  of  the  European 
Parliament,  the  Council  and  the  Commission  under  the  structured  dialogue.  It  also 
makes provision for the establishment of a Review Adviser to formulate opinions for 
a  certain  number  of  cases  and  is  designed  to  clarify  the  mandate  of  the  Director-
General of OLAF. 

Events  in  2005.  In  2005  the  Commission  adopted  its  second  report16  on  the 
application  by  the  Member  States  of  the  Black  List  Regulation17.  This  Regulation 
provides  for  the  identification  of  economic  operators  that  present  a  risk  to  the 
Community budget in the field of the EAGGF Guarantee Section, the notification of 
the  Commission  and  the  Member  States,  and  the  implementation  of  preventive 
measures. The report found that the results of the application of the Regulation had 
been  modest.  Via  this  report,  the  Commission  hopes  to  provoke  a  wide-ranging 
debate with the institutions on the need and possible guidelines for a potential reform 
of the exclusion mechanism. 

12 

13 

14 

15 

16 

17 

Proposals  for  a  Regulation  amending  Regulations  (EC)  No 1073/1999  and  (Euratom)  No  1074/1999 
relating to the investigations carried out by the European Anti-Fraud Office (OLAF) (COM(2004) 103 
and 104). 
Commission staff working document, Complementary evaluation of the activities of the European Anti-
Fraud Office (OLAF) (SEC(2004) 1370). See also Commission Report, “Evaluation of the activities of 
the European Anti-Fraud Office (OLAF)” (COM(2003) 154 final).  
Court of Auditors’ Special Report No 1/2005 concerning the management of the European Anti-Fraud 
Office (OLAF), together with the Commission's replies (OJ C 202, 8.8.2005). 
Hearing  of  12  and  13  July  2005  entitled  “Strengthening  OLAF:  revision  of  the  Regulation  on  the 
European Anti-Fraud Office”. 
Report  from  the  Commission  to  the  European  Parliament  and  the  Council  on  the  application  of 
Regulation (EC) No 1469/95 (COM(2005) 520). 
Council Regulation (EC) No 1469/95 of 22 June 1995 on measures to be taken with regard to certain 
beneficiaries of operations financed by the Guarantee Section of the EAGGF (OJ L145, 29.6.1995).  

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1.2. 

A new culture of operational cooperation 

Since 2001 the Commission has made efforts to help the ten new Member States and 
the candidate countries adopt the acquis in terms of the protection of the European 
Communities’  financial  interests.  The  ten  new  Member  States,  Romania  and 
Bulgaria  established  national  anti-fraud  coordination  services  (AFCOS)  to  take 
responsibility  for  all  of  the  legislative,  administrative  and  operational  aspects  of 
protecting the Communities’ financial interests, which have proved very useful. Ten 
new Member States were brought into the fold without any particular difficulties and 
took  adequate  steps  to  prepare  for  their  new  task  of  protecting  the  Communities’ 
financial  interests.  In  order  to  provide  better  support  for  Romania’s  and  Bulgaria’s 
accession  process,  OLAF  has  reinforced  its  activities  and  operational  effectiveness 
by detaching a liaison officer to each of the two countries. 

In  2004  the  European  Community  and  its  Member  States  signed  a  Cooperation 
Agreement18 with the Swiss Confederation on fraud prevention and all other illegal 
activities detrimental to their financial interests. 

Also  in  2004  the  Commission  proposed  the  adoption  of  a  regulation  concerning 
mutual  administrative  assistance19  that  would  provide  a  detailed  legal  basis  and 
would  be  horizontal  in  the  sense  that  it  covers  all  the  areas  involved  in  the  fight 
against Community fraud and not yet addressed by sectoral legislation. 

Events  in  2005.  Some  international  trade  transactions  carried  out  in  violation  of 
customs  rules,  including  the  rules  relating  to  intellectual  property,  adversely  affect 
the economy and the fiscal interests of the Member States and the customs revenues 
of the EU budget. Trade with China has given rise to a number of problems in recent 
years. A cooperation agreement negotiated and signed in 2004 entered into force in 
2005,  with  the  aim  of  improving  mutual  assistance  between  the  European 
Community  and  China  in  the  customs  field.  The  operational  side  is  managed  by 
OLAF.  

A  permanent  technical  support  infrastructure  (POCU),  with  better  cooperation  and 
support for joint customs operations by the Member States, was launched at OLAF. 
POCU  will  allow  better  cooperation  for  joint  customs  operations,  enabling  them  to 
proceed rapidly at a lower cost. The first operation based on the new infrastructure 
was “Operation Fake” concerning counterfeit goods from China. The operation took 
place in May 2005 and produced very satisfactory results (see point 3.2). 

The regulations in the field of the Structural Funds and the Cohesion Fund requiring 
the Member States to inform the Commission of cases where there is suspicion that 
an irregularity has been committed under the sectoral regulations were amended and 

18 

19 

Council Decision concerning the signature of the Agreement between the European Community and its 
Member States, of the one part, and the Swiss Confederation, of the other part, to counter fraud and all 
other  illegal  activities  affecting  their  financial  interests  (COM(2004)559  final  and  OJ  C  244, 
1.10.2004). 
Proposal  for  a  Regulation  of  the  European  Parliament  and  of  the  Council  on  mutual  administrative 
assistance for the protection of the Community’s financial interests against fraud and any other illegal 
activities (COM(2004)509 final). 

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modernised20  so  as  to  ensure  harmonised  implementation.  This  harmonisation  will 
continue with the amendment of the regulation applicable in the agricultural sector. 

The  basic  rules  governing  the  Advisory  Committee  for  the  Coordination  of  Fraud 
Prevention  were  amended  by  Commission  decision21  so  as  to  adapt  them  to  the 
changes  that  had  occurred  since  its  establishment  in  1994,  such  as  the  insertion  of 
Article  280  into  the  EC  Treaty,  the  establishment  of  OLAF  in  1999,  and  even  the 
introduction of the euro. The Committee, made up of representatives of the Member 
States  and  the  Commission,  assists  the  Commission  in  all  matters  relating  to  the 
protection of the Communities’ financial interests. 

1.3. 

Preventing and combating corruption in the institutions 

In accordance with the mission entrusted to it by the Community legislature in 1999, 
OLAF  continued  to  perform  the  task  of  preventing  and  combating  corruption.  The 
European Court of Justice has confirmed on a number of occasions the legality and 
coherence  of  the  inter-institutional  framework  for  internal  investigations,  which 
applies generally to all the institutions, agencies and organisations22. 

The  memoranda  of  understanding  concluded  by  OLAF  with  the  Internal  Audit 
Service (IAS)23 in 2001 and with IDOC24 in 2004, describing their respective areas 
of  activity,  created  the  conditions  for  fruitful  cooperation  between  these  bodies. 
Frequent  contacts  between  OLAF  and  IDOC  in  2005  enabled  them  to  coordinate 
their activities in specific cases. 

In  the  context  of  the  administrative  reform,  measures  were  taken  to  make 
Commission  officials  and  other  servants  aware  of  the  principles  of  sound  project 
management,  conflicts  of  interest  and  the  correct  conduct  to  adopt  in  cases  where 
there  is  suspicion  of  serious  wrongdoing  likely  to  be  detrimental  to  the  interests  of 
the Communities. 

20 

21 

22 

23 
24 

Commission  Regulation  (EC)  No 2035/2005  of  12  December  2005  amending  Regulation  (EC) 
No 1681/94  concerning  irregularities  and  the  recovery  of  sums  wrongly  paid  in  connection  with  the 
financing of the structural policies and the organisation of an information system in this field (OJ L 328, 
15 December 2005), and Commission Regulation (EC) No 2168/2005 of 23 December 2005 amending 
Regulation  (EC)  No 1831/94  concerning  irregularities  and  the  recovery  of  sums  wrongly  paid  in 
connection with the financing of the Cohesion Fund and the organisation of an information system in 
this field (OJ L 345, 28.12.2005). 
Commission  Decision  of  25  February  2005  amending  Decision  94/140/EC  setting  up  an  advisory 
committee for the coordination of fraud prevention (OJ L 71, 17.3.2005). 
The  European Court  of  Justice,  in  its decision  in  Case  C-167/02 P,  confirmed  on 30 March 2004  the 
judgment of the Court of First Instance in Case T-17/00 of 26 February 2002 declaring the appeal by 
71 members of the European Parliament inadmissible. The appeal sought to annul the Decision of the 
Parliament  of  18  November  1999  amending  its  rules  of  procedure,  which  authorised  the  European 
Anti-Fraud Office (OLAF) to carry out its internal investigations also within the European Parliament. 
In 2003, in Cases C-11/00 and C-15/00, the Court ruled that OLAF could investigate cases of suspected 
fraud  and  irregularities  within  the  European  Central  Bank  (ECB)  and  the  European  Investment  Bank 
(EIB) on the grounds that Regulation (EC) No 1073/1999 was applicable. The Court also annulled the 
decisions of the ECB and the EIB aimed at reserving the right for such investigations to be carried out 
internally.  
OLAF-IAS Memorandum of Understanding of 25 July 2001 (SEC(2003) 884/2). 
Commission Decision C (2004) 1588 final/4 of 28 April 2004. 

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The  Commission  proposal  amending  the  legal  framework  for  investigations  carried 
out  by  OLAF,  which  was  adopted  on  24  May  2006,  covers,  among  other  things, 
improvements in the information provided to the institutions and the possibility, for 
internal investigations, of not transmitting the final report to the competent judicial 
authorities if the offences are not serious enough, if the financial loss is minor and if 
internal  measures  may  be  taken  to  ensure  appropriate  follow-up,  the  report  being 
transmitted to the institution, body or agency concerned. 

1.4. 

Enhancement of the criminal judicial dimension 

The  Commission  included  this  fourth  guideline  in  its  overall  strategic  approach  in 
order  to  address  the  difficulties  linked  to  the  incompatibility  of  the  national  legal 
systems and the need to handle complex and often transnational legal matters. 

In 2001 the Commission presented to the European Parliament and to the Council a 
proposal for a directive on the criminal-law protection of the Community's financial 
interests25.  This  proposal  aims  to  bring  together  in  a  Community  instrument  a 
number  of  criminal-law  provisions  (including  the  definition  of  illegal  behaviour, 
liabilities  and  sanctions,  and  cooperation  with  the  Commission)  that  are  present  in 
the Convention on the protection of the European Communities’ financial interests26 
and its protocols27.  

The  said  Convention,  its  first  protocol  and  the  protocol  on  the  jurisdiction  of  the 
Court of Justice entered into force in 2002, improving judicial cooperation in various 
areas. The Commission recommended that the Council invite the Member States to 
intensify  their  efforts  to  strengthen  national  criminal  legislation,  reconsider  their 
reservations  with  regard  to  the  instruments  of  the  Convention  and  ratify  without 
delay  the  second  protocol.  It  is  currently  preparing  a  second  report28  on  the 
implementation of the Convention and the protocols already in force, which should 
be adopted late in 2007 and will cover the 25 Member States. 

The EU’s desire to advance the principle of mutual recognition, which has become 
the cornerstone of criminal judicial cooperation, led to intensive legislative activity 
in the areas covered by Title VI of the EU Treaty. This activity had a positive effect 
in particular  on the protection  of  the  Community's  financial interests. For example, 
the  adoption  of  the  framework  decision  on  the  European  arrest  warrant29  in  2002 

25 

26 

27 

28 

29 

COM(2001)  272  final  (OJ  C 240E,  28.8.2001),  amended  in  2002  as  a  result  of  the  comments  of  the 
Court of Auditors and the European Parliament (COM (2002) 577 final). 
Convention, drawn up on the basis of Article K.3 of the Treaty on European Union, on the protection of 
the  European  Communities’  financial  interests,  signed  in  Brussels  on  26  July  1995  (OJ  C  316, 
27.11.1995). 
First Protocol to the Convention on the protection of the European Communities’ financial interests (OJ 
C  313,  23.10.1996).  Protocol  on  the  interpretation,  by  way  of  preliminary  rulings,  by  the  Court  of 
Justice  of  the  European  Communities  of  the  Convention  on  the  protection  of  the  European 
Communities’  financial  interests,  (OJ  C  151,  20.5.1997).  Second  Protocol  to  the  Convention  on  the 
protection of the European Communities’ financial interests, Joint Declaration concerning Article 13(2) 
– Commission Declaration concerning Article 7 (OJ C 221, 19.7.1997). 
Report from the Commission - Implementation by Member States of the Convention on the Protection 
of the European Communities' financial interests and its protocols, COM(2004) 709. 
Council  Framework  Decision  2002/584/JHA  on  the  European  arrest  warrant  and  the  surrender 
procedures between Member States (OJ L 190, 18.7.2002). 

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makes  it  considerably  easier  to  arrest  an  individual  and  surrender  him  to  another 
Member State for the purposes of conducting a criminal prosecution or executing a 
custodial sentence or detention order.  

the  Community’s  financial 

The  memorandum  of  understanding  signed  by  OLAF  and  Eurojust  in  2003  makes 
provision  for  mutual  exchanges  of  information  and  cooperation  with  a  view  to 
protecting 
implementing 
arrangements  were  adopted  by  OLAF  and  Eurojust  in  2004.  An  OLAF-Eurojust 
liaison  group  has  been  set  up  to  put  the  memorandum  into  effect.  The  group  held 
regular  meetings  in  2005.  In  this  context,  Eurojust  cooperated  with  OLAF  and 
national  authorities  in  a  number  of  OLAF  cases,  taking  part  in  the  relevant 
investigations and prosecutions. 

interests.  The  practical 

The  memorandum  signed  by  OLAF  and  Europol  in  2004  makes  provision  for  the 
enhancement  of  exchanges  of  strategic  and  technical  information,  and  information 
exchanges  on  risk  assessment  and  analysis  in  areas  of  common  interest.  In  2005 
OLAF  and  Europol  stepped  up  their  collaboration,  particularly  on  smuggling  and 
euro counterfeiting. The Office also maintains contacts with international authorities 
such as Interpol and the World Customs Organisation (WCO). 

In 2001 the Commission adopted a Green Paper30 intended to launch debate on the 
establishment  of  a  European  Prosecutor  in  the  interests  of  combating  more 
effectively  criminal  activity  detrimental  to  the  financial  interests  of  the  European 
Communities.  Article  III-274  of  the  Treaty  establishing  a  Constitution  for  Europe, 
adopted  by  the  European  Council  in  June  2004  but  not  yet  ratified  by  the 
Member States, stipulates that the Council, acting unanimously and after approval by 
the European Parliament, may establish a European Prosecutor's Office on the basis 
of Eurojust in order to combat offences detrimental to the Union's financial interests. 
The  Prosecutor’s  Office  would  be  empowered  to  investigate,  pursue  and  send  for 
prosecution the authors of such offences and their accomplices.  

Events in 2005. The Commission noted in a communication31 the consequences of 
the landmark ruling of the Court of Justice on criminal-law provisions concerning the 
first  and  third  pillars32,  particularly  on  the  proposal  for  a  directive  on  criminal-law 
protection  of  the  financial  interests  of  the  Communities.  In  accordance  with  this 
judgment,  when  recourse  to  a  specific  criminal-law  provision  for  the  matter  in 
question  is  necessary  to  guarantee  the  effectiveness  of  Community  law,  it  must  be 
adopted  exclusively  under  the  first  pillar.  This  system  puts  an  end  to  the  dual-text 
mechanism (directive or regulation and framework decision). 

1.5. 

Conclusion 

Five  years  after  the  launch  of  the  overall  strategic  approach,  a  positive  assessment 
can be made of the actions undertaken. As shown in the summary above, significant 
progress has been achieved in each of the main strategic guidelines for the protection 

30 

31 

32 

Green  Paper  on  criminal-law  protection  of  the  financial  interests  of  the  Community  and  the 
establishment of a European Prosecutor (COM(2001) 715). 
Communication  from  the  Commission  on  the  implications  of  the  Court’s  judgment  of  13  September 
2005 (COM(2005) 583 final). 
Judgment C-176/03 Council v Commission. 

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11 

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of the European Communities’ financial interests. However, the enhancement of the 
criminal  judicial  dimension  has  slowed  down.  For  example,  preparation  for  the 
establishment  of  a  European  Prosecutor  has  slowed  down  temporarily  pending 
ratification of the Constitutional Treaty.  

Of  all  the  actions  planned  for  the  whole  of  the  programming  period,  75%  were 
carried  out  in  full  prior  to  31  December  2005,  while  9%  were  partially  carried  out 
within the stipulated timeframe and are ongoing, 14% were postponed to 2006, and 
10%  have  been  provisionally  or  definitively  suspended,  largely  for  reasons  outside 
the Commission’s control. 

2. 

RESULTS  OF  THE  FIGHT  AGAINST  FRAUD:  STATISTICS  CONCERNING  FRAUD  AND 
OTHER  IRREGULARITIES  REPORTED  BY  THE  MEMBER  STATES  UNDER  SECTORAL 
REGULATIONS 

Community law requires Member States to notify the Commission of cases of fraud 
and  other  irregularities  that  are  detrimental  to  financial  interests  in  all  areas  of 
Community activity33. The statistics given in this chapter relate to suspicions of fraud 
and  other  irregularities  reported  by  the  Member  States,  as  defined  by  the  sectoral 
regulations.  Direct  Community  expenditure  is  not  concerned34.The  paper  published 
by the Commission at the same time as this report contains a detailed analysis of the 
statistics  obtained  from  these  communications35.  The  following  table  provides  a 
sectoral breakdown of irregularities reported in 2005 and the amounts concerned36. 

Table - Number of irregularities and the amounts - 2005 

TOTAL 2005 

Field 

Number of 
irregularities 
reported 

Total financial 
impact (in € 
million) 

Own resources 

EAGGF Guarantee 

Structural Funds and 
Cohesion Fund 

4 982 

3 193 

3 570 

322 

102 

601 

33 

34 

35 
36 

See  in  particular  Article 3(1)  of  Council  Regulation  (EEC)  No 595/91  of  4 March 1991  (OJ  L  67, 
14.3.1991),  Commission  Regulation  (EC)  No 1681/94  of  11 July 1994  (OJ  L  178,  12.7.1994)  and 
Commission  Regulation  (EC)  No 1831/94  of  26 July 1994  (OJ  L  191,  27.7.1994)  as  regards 
expenditure  and  Article 6(5)  of  Council  Regulation  (EC,  Euratom)  No  1150/2000  of  22 May 2000 
(OJ L  130,  31.5.2000)  as  regards  traditional  own  resources.  A  similar  obligation  exists  for  countries 
eligible for pre-accession funds. 
The  OLAF  Operational  Activity  Report  deals  with  this  matter.  It  can  be  consulted  at  the  Office’s 
website: http://ec.europa.eu/comm/anti_fraud/reports/index_en.html. 
SEC (2006)... 
The  statistics  given  in  this  chapter  relate  to  expenditure  in  respect  of  which  the  Member  States  have 
reported fraud and other irregularities. 

EN 

12 

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Pre-accession funds 

331 

Total 

12 076 

17 

1 042 

It is important to distinguish between fraud and irregularities. Fraud is defined as an 
irregularity that is committed intentionally and constitutes a criminal act that only a 
judge may define as such37. The real financial impact of fraud can be measured only 
at  the  end  of  legal  proceedings.  As  regards  own  resources,  suspicions  of  fraud 
account  for  approximately  20%  of  the  cases  of  irregularities  notified  in  2005  and 
involve an amount of some €95.2 million. For agricultural expenditure, suspicions of 
fraud  account  for  approximately  13%  of  the  cases  of  irregularities  notified  and 
involving an amount of some €21.5 million, equivalent to 0.05% of the total EAGGF 
Guarantee  Section  appropriations.  For  the  Structural  Funds,  approximately  15%  of 
the irregularities notified and involving an amount of €205 million were attributed to 
fraud  and  accounted  for  some  0.53%  of  the  total  appropriations  for  the  Structural 
Funds  and  the  Cohesion  Fund.  For  pre-accession  funds,  fraud  accounted  for 
approximately  18%  of  the  irregularities  notified  and  involving  an  amount  of  some 
€1.77  million,  equivalent  to  0.06%  of  the  total  appropriations  under  the  PHARE38, 
SAPARD39 and ISPA40 funds. This estimate is based on the information reported by 
the Member States, but must be treated with caution. 

2.1. 

Traditional own resources 

The  number  of  cases  of  detected  fraud  and  irregularities  communicated  (cases  >  
€10  000) increased  by  55  %  compared  with  2004  (4  982  cases  in  2005)41.  The 
amount affected by irregularities in 2005 is around €322 million, as compared with 
€212 million in 2004, an increase of 52%. 

This  increase  could  be  explained,  in  particular,  by  better  communication  by  some 
Member  States  and  by  the  fact  that  some  Member  States  have  entered  into  the 
OWNRES  system  cases  of  undischarged  transit  operations  that  were  subsequently, 
although belatedly, discharged. The bald increase of 55% does not therefore justify 
any conclusion as to the actual situation regarding fraud and other irregularities. 

Cigarettes  are  still  among  the  products  most  affected  by  irregularities,  with  most 
cases reported concerning cigarette smuggling. In 2005 the number of cases relating 
to the sugar sector also increased. These were essentially cases of non-exportation of 
sugar exceeding the quantity approved by the Community system. There was also an 
increase in the number of cases relating to the textile sector, particularly concerning 
declaration of origin. 

37 

38 

39 

40 
41 

See  the  definition  in  Article  1  of  the  Convention  on  the  protection  of  the  European  Communities' 
financial interests of 26 July 1995 (OJ C 316, 27.11.1995). 
Poland-Hungary:  assistance  for  economic  restructuring,  Regulation  (EC)  No  3906/89,  OJ  L  375, 
23.12.1989. 
SAPARD  (Agricultural  Pre-accession  Instrument),  Regulation  (EC)  No  1268/1999,  OJ  L  161, 
26.6.1999. 
ISPA (Structural Pre-accession Instrument), Regulation (EC) No 1267/1999, OJ L 161, 26.6.1999. 
The figures published in the 2004 report have been updated. 

EN 

13 

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Table 2.1- Notification of cases of irregularities and fraud reported by the 
Member States in the area of traditional own resources - 2000-2005 

(amounts in € million)

6000 

5000 

4000 

3000 

2000 

1000 

0 

4000 
3500 
3000 
2500 
2000 
1500 
1000 
500 
0 

Number of communications 
Amount established (M€) 

2000 

2001

2002 

2003

2004

2005

2.2.  Agricultural expenditure (EAGGF Guarantee) 

In  2005  the  number  of  notified  irregularities  decreased  slightly  compared  with  the 
previous years (3 193 cases in 2005, 3 401 cases in 2004). On the other hand, their 
financial impact increased (€102 million in 2005, €82 million in 2004), representing 
around 0.21% of total EAGGF Guarantee appropriations (€47 819 million for 2005). 

Table 2.2. - Notification of cases of irregularities in the area of agricultural 

expenditure

2000-2005 (amounts in € million)

Number of communications 
Amount established (M€) 

2000 

2001

2002 

2003

2004

2005

2.3.  Structural measures 

In  2005  the  number  of  irregularities  notified  (3  570  cases,  including  the  Cohesion 
Fund) increased over the previous year (3 339 cases), whereas their financial impact 
decreased (€601 million in 2005, €696 million in 2004). The financial impact of the 
irregularities  notified  in  2005  accounts  for  around  1.56%  of  the  Structural  and 
Cohesion Fund appropriations (€38 430 million) for 2005. The final impact will not 
be known until the programmes have been wound up. 

EN 

14 

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Table 2.1.3. - Notification of cases of irregularities in the area of structural 

measures 
2000 - 2005 (amounts in € million)

Number of communications 
Amount established  ( M€ ) 

5000 
4500 
4000 
3500 
3000 
2500 
2000 
1500 
1000 
500 
0 

2000 

2001

2002 

2003

2004

2005

2.4.  Pre-accession funds 

A  notification  system  for  irregularities  similar  to  that  for  the  Structural  Funds  was 
established  by  the  Multi-Annual  Financing  Agreement  for  PHARE,  SAPARD  and 
ISPA funds and for the funds granted to Cyprus and Malta42. 

Table  2.4.:  Irregularities  and  amounts  notified  by  the  Member States  and  the 
accession countries43 concerning pre-accession funds – 2002-200544. 

Year 

PHARE45 

SAPARD 

ISPA 

TOTAL 

Cases  EU 

Cases  EU 

Cases  EU 

Cases  EU 

financing 
affected 
by 
irregulari
ties 
(€’000) 

2002 

2003 

2004 

2005 

1 

52 

68 

21.6 

544.1 

1 845 

139 

6 106 

0

34

134

167

financing 
affected 
by 
irregulari
ties 
(€’000) 

0

4 121

5 533.5

3 754.4

Total 

260 

8 516.7 

335

13 408.9

financing 
affected 
by 
irregulari
ties 
(€‘000) 

financing 
affected 
by 
irregulari
ties 
(€‘000) 

6

18

25

25

74

14.9

7 

36.5

835.9

104 

5 501

251.7

227 

7 630.2

6 938.7

331 

16 799.1

8 041.2

669 

29 966.8

42 
43 
44 

45 

Regulation (EC) No 555/2000 (OJ L 68, 16.3.2000). 
Bulgaria and Romania. 
The  figures  published  in  the  2004  report  have  been  updated  (the  allocation  of  cases  per  year  was 
corrected and ten new cases concerning the years 2002 to 2004 were notified in 2005). 
This column includes reports from Cyprus and Malta under Regulation (EC) No 555/2000. 

EN 

15 

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The  quality  of  notifications  concerning  irregularities  has  improved  slightly  in 
comparison  with  2004,  particularly  with  regard  to  the  estimation  of  the  irregular 
amounts by the national authorities. Nevertheless, this effort must be maintained in 
order to permit a more detailed analysis. 

The  number  of  irregularities  concerning  PHARE  and  SAPARD  funds  for  2005  is 
markedly  higher  than  the  number  of  cases  notified  for  the  previous  years,  On  the 
other  hand,  the  number  of  irregularities  concerning  ISPA  has  not  changed;  an 
explanation for this could be the transformation of ISPA  into  a Structural  Fund for 
the  new  Member  States  upon  their  accession  to  the  Union  in  2004.  The  presumed 
financial  impact  of  the  irregularities  increased  for  ISPA  and  PHARE  but  fell  for 
SAPARD.  For  2005,  the  total  amount  of  irregularities  notified  amounts  to 
€16 799 703, or some 0.55% of the total amounts allocated (€3 015.9 million). 

3. 

MEASURES TAKEN BY THE MEMBER STATES AND THE COMMISSION IN 2005 

3.1.  Measures taken by the Member States 

The  provisions  set  out  below  are  a  representative  sample.  A  separate  Commission 
paper itemises all the new measures reported by the Member States in 200546.  

3.1.1.  New horizontal measures 

The  Member  States  have  reported  the  adoption  of  many  horizontal  measures,  i.e. 
measures that help protect the Communities’ financial interests but are not confined 
to  a  specific  sector.  These  measures  are  very  diverse:  some  concern  prevention  or 
recovery, but most relate to criminal law. 

Greece has taken measures to prevent breaches of the rules governing the conclusion 
and  execution  of  public  contracts,  and  to  ensure  transparency  and  healthy 
competition. A law has been passed amending the provisions on money laundering, 
focusing particularly on protecting the Communities’ financial interests. 

In Hungary the provisions governing the recovery of Community resources and the 
associated Hungarian budget resources have been improved. The new rules facilitate 
the use of financial guarantees in the event of the irregular use of funds. The act in 
question  is  retroactive:  it  covers  all  Community  funds  –  including  pre-accession 
funds  –  for  which  financing  agreements  have  been  concluded  since  1 January 2003 
and Community own resources. 

A Portuguese act provides for banking secrecy to be lifted where there is proof that a 
tax offence has been committed and the perpetrator has made false declarations. 

In France an amendment to the code of criminal procedure means that the rules on 
repeat offenders now apply to offences committed by someone previously convicted 

46 

SEC (2006)... The Member States were asked to provide information only on measures that are more 
than a mere implementation of Community law. Since the Commission's report comes out annually, the 
lack  of  any  new  measures  in  2005  in  certain  Member  States  cannot  be  interpreted  as  reflecting  the 
general level of protection of financial interests in those countries. On the contrary, it may be the result 
of a higher level of activity in the preceding period. 

EN 

16 

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by a court in another Member State. This makes it easier to combat those committing 
offences  (including  offences  detrimental  to  the  Community’s  financial  interests)  in 
several Member States. 

Harm  to  the  financial  interests  of  the  European  Communities  is  now  a  specific 
offence in the Slovak Republic’s criminal code. It is punishable by prison sentences 
ranging from six months to 12 years. 

Latvia  has  amended  its  criminal  code  to  include  a  new  offence:  fraud  in  an 
automated data-processing  system has been added to the  existing offences of fraud 
and insurance fraud. 

3.1.2.  New measures relating to Community own resources 

A  wide-ranging  reform  of  the  Lithuanian  criminal  code  has  introduced  two  new 
offences  aimed  at  tackling  smuggling  and  the  receiving  of  smuggled  goods  in 
Lithuania or any other EU Member State. 

Spain  has  amended  the  implementing  provisions  for  its  tax  act  in  order  to  improve 
the recovery of amounts unpaid by importers. 

Italy  has  taken  steps  to  improve  the  recovery  of  taxes  and  amounts  due  to  the 
authorities. 

In  Ireland  a  new  act  considerably  expands  the  scope  for  customs  officers  to  seize 
money  suspected  to  be  the  instrument  or  product  of  an  offence  anywhere  on  its 
territory. 

The fight against VAT fraud is basically governed by national provisions. A number 
of Member States (Belgium, Latvia, Hungary, Slovenia, and Italy) have reported the 
adoption of measures aimed at strengthening action against such infringements, be it 
in terms of offences or procedures. For instance, Belgium has adopted two new acts 
in the matter: one introducing a provision aimed at preventing abuses in the area of 
VAT  and  another  aimed  at  countering  bankruptcy  fraud  through  the  fraudulent 
conveyance of assets, such as the transfer of a business without settling VAT debts. 
Ireland  has  declared  that  it  maintains  its  reservations  concerning  the  inclusion  of 
VAT in the Article 280 report47.  

3.1.3.  New measures relating to agricultural expenditure 

Spain  has  reported  new  measures  taken  to  improve  the  system  of  on-the-spot 
controls in the dairy and fruit-and-vegetable sectors. 

In Italy a series of measures have been decided on to improve the recovery of sums 
unduly paid by the EAGGF Guarantee Section paying agencies. 

47 

Ireland, unlike the Commission, considers that “all measures concerning taxes must be taken under the 
appropriate  article  of  the  Treaty,  i.e.  unanimously”.  Consequently,  it  continues  to  maintain  its 
reservation  concerning  the  inclusion  of  VAT  in  the  Article  280  report  as,  in  its  view,  this  is  not  the 
appropriate article for the notification of measures for combating VAT fraud.  

EN 

17 

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A number of new offences relating to breaches of accounting obligations have been 
introduced into Hungarian law. These offences result from a failure to comply with 
procedures  governing  the  granting  of  agricultural  aid  are  breached  and  may  be 
committed involuntarily. In some cases, legal persons may incur criminal penalties. 

Poland has reported the adoption of a cooperation agreement between customs and 
the  agricultural  market  agency  designed  to  facilitate  the  flow  of  documents  and 
information between the two authorities. 

In  Portugal,  two  ministerial  decrees  have  amended  the  implementing  arrangements 
for controlling cross-compliance. 

3.1.4.  New measures relating to structural measures 

Estonia  now  has  a  regulation  enabling  the  paying  authorities  to  suspend  payments 
when they learn that the control system in place does not meet certain conditions.48 
Another regulation provides for the Finance Ministry’s financial control department 
(AFCOS – department for cooperation with OLAF) to be notified of suspected fraud 
or irregularities within two  weeks. This measure, which speeds up the involvement 
of  the  competent  authorities,  is  intended  to  prevent  irregularities  where  this  is  still 
possible and to improve recovery where sums have already been unduly paid out. 

In Greece a ministerial decision lays down the procedure for recovering sums paid 
illegally or unduly from the national budget to final recipients for the implementation 
of  programmes  financed  by  the  ESF  under  the  third  Community  Support 
Framework.49 The decision to recover amounts is taken by the special department of 
the Ministry of Employment and Social Security responsible for implementing ESF 
co-financing,  which  acts  in  its  capacity  as  final  beneficiary  of  the  “Promotion  of 
Employment and Continuous Training” operational programme. 

The Lithuanian authorities have taken measures to develop and improve the system 
for  analysing  and  managing  risks  relating  to  the  Structural  Funds  (Objective 1 
programmes) and the Cohesion Fund and to national part-financing. 

3.2. 

Operational measures adopted by the Commission to fight fraud 

Since the policy and legislative measures have been set out in Chapter 1, this chapter 
basically covers the operational measures adopted by the Commission to fight fraud, 
and  in  particular  to  enhance  the  operational  effectiveness  of  OLAF,  the  European 
Anti-Fraud Office. 

Following 
the  Court  of  Auditors,  certain 
issued  by 
improvements  have  been  made  in  order  to  carry  out  day-to-day  work  more 

the  recommendations 

48 

49 

And  in  particular  those  of  Commission  Regulation  (EC)  No  438/2001  of  2  March  2001  laying  down 
detailed  rules  for  the  implementation  of  Council  Regulation  (EC)  No  1260/1999  as  regards  the 
management and control systems for assistance granted under the Structural Funds (OJ L 63, 3.3.2001) 
and  of  Council  Regulation (EC,  Euratom)  No 2988/95  of  18 December  1995 on  the protection of  the 
European Communities’ financial interests (OJ L 312, 23.12.1995). 
Joint Ministerial Decision No 190622/16.12.2005. 

EN 

18 

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effectively. In particular, OLAF has taken steps to assess incoming information more 
efficiently. 

In  2005  OLAF  opened  257  cases  (including  monitoring  cases,  for  which  OLAF 
essentially monitors the investigations carried out by the authorities in the Member 
States). It closed 233 cases, of which 133 were sent for follow-up. The proportion of 
closed  investigations  requiring  follow-up  is  continuing  to  increase,  which  is 
indicative  of  an  improvement  in  quality  and  the  increased  importance  of  the  cases 
investigated by OLAF.  

Furthermore, OLAF has improved its coordinating and support capacity in the field 
of mutual assistance by organising “Joint Customs Surveillance Operations” and by 
providing  the  Member  States  with  logistical  resources  (permanent  technical 
infrastructure  –  POCU)  and  with  technical  resources  (the  Virtual  Operational 
Customs  Unit  V-OCU)  on  OLAF  premises.  Since  mid-2005,  the  Office  has 
coordinated  two  joint  customs  operations  and  provided  logistical  and/or  technical 
support for four joint customs operations organised by the Member States. 

3.3. 

Complementary  measures  for  the  protection  of  the  Communities’  financial 
interests 

3.3.1. 

State of play with the ratification by Member States of the Convention of 26July 1995 
on  the  protection  of  the  European  Communities’  financial  interests50  and  its 
protocols  

The  Convention  of  26  July  1995  on  the  protection  of  the  European  Communities’ 
financial interests, together with the First Protocol, which defines active and passive 
corruption, and the Protocol of 29 November 1996 concerning the interpretation of 
the Convention by the Court of Justice, entered into force on 17 October 2002 in all 
the old Member States. 

Following its ratification by Luxembourg in 2005, the Second Protocol, which makes 
provision  for  sanctions  to  be  imposed  on  legal  persons  and  expands  the  scope  of 
incriminations for money laundering connected with fraud, has now been ratified by 
13  old  Member  States.  Austria  and  Italy  have  still  not  ratified  it.  Austria  has 
announced  the  adoption  of  a  new  law  which  figures  among  the  most  important 
measures  adopted  in  2005  to  protect  Community’s  financial  interests  more 
effectively.  The  new  law  establishes  in  Austrian  law  the  criminal  liability  of  legal 
persons (under public or private law) and commercial law associations for offences 
detrimental  to  the  Community’s  financial  interests.  The  ratification  process  for  the 
Second Protocol is under way in Austria.  

Following  the  accession  of  the  ten  new  Member  States,  Lithuania  and  Slovakia 
ratified the Convention and its protocols in 2004. In 2005 Cyprus, Estonia and Latvia 
also deposited their instruments of ratification. 

By  end  of  2005,  however,  five  of  the  ten  new  Member  States  (Czech  Republic, 
Hungary,  Malta,  Poland,  and  Slovenia)  had  still  not  ratified  the  Convention.  A 

50 

See references to point 1.4. 

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19 

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summary table showing the state of play with regard to ratification can be found in 
the Commission staff working document published at the same time as this Report.51.  

3.3.2.  The Customs Information System (CIS) and the ratification of the Convention on the 
use of information technology for customs purposes52 and of its protocol53 creating a 
Customs File Identification Database (FIDE)  

The Commission (OLAF) is responsible for, runs and provides technical support for 
the Customs Information System (CIS)54.  

The CIS was created to store information on goods, transport means, individuals and 
companies,  thereby  contributing  to  the  prevention,  investigation  and  prosecution  of 
breaches  of  customs  and  agricultural  legislation  (first  pillar)  and  serious  offences 
under national legislation (third pillar). Its aim is to create a warning system for the 
fight against fraud and  to enable  a Member State participating  in the system to ask 
another  Member  State  to  carry  out  one  of  the  following  actions:  sighting  and 
reporting, discreet surveillance or a specific check.  

As regards the third pillar, access to the CIS system is subject to ratification by the 
Member  States  of  the  Convention  of  26  July  2005  on  the  use  of  information 
technology for customs purposes. Among the old Member States the CIS Convention 
was  provisionally  applied  on  1  November  2000  and  entered  into  force  on  25 
December 2005 with its ratification by Belgium. 

Since 1 May 2004 the new Member States, basing themselves on Article 3(4) of the 
Accession Treaty, can accede to the Agreement on the provisional application of the 
CIS Convention.  

Consequently,  following  ratification  by  the  Czech  Republic,  Estonia,  Belgium  and 
Poland,  the  Convention  entered  into  force  on  25  December  2005  in  almost  all  the 
Member  States.  Poland  notified  its  ratification  in  November  2005,  and  the 
Convention entered into force there 90 days later, namely in 2006. At present, Malta 
is the only Member State that has not started the Convention ratification process.  

The  Commission  (OLAF)  is  also  responsible  for  the  Customs  File  Identification 
Database (FIDE)55, which contains all customs investigation references. The aim of 
this  database  is  threefold:  (i)  to  simplify  the  exchange  of  information  between 
European  services  investigating  the  same  object  (person  or  business);  (ii)  to  enable 

51 
52 

53 

54 

55 

SEC(2006)… 
Convention  on  the  use  of  information  technology  for  customs  purposes,  drawn  up  on  the  basis  of 
Article K.3 of the Treaty on European Union (Official Journal C 316, 27.11.1995). 
Council Act of 8 May 2003 drawing up a Protocol amending, as regards the creation of a customs file 
identification  database,  the  Convention  on  the  use  of  information  technology  for  customs  purposes 
(OJ C 139, 13.6.2003). 
The CIS is based, on the one hand, on Council Regulation (EC) No 515/97 of 13 March 1997 on mutual 
assistance between the administrative authorities of the Member States and their cooperation with the 
Commission  to  ensure  the  correct  application  of  law  on  customs  and  agricultural  matters  (OJ  L  82, 
22.3.1997) and, on the other, on the Convention of 26 July 1995 on the use of information technology 
for customs purposes, drawn up on the basis of Article K.3 of the Treaty. 
For more information, see also the OLAF website at 
http://europa.eu.int/comm/anti_fraud/fide/i_en.html. 

EN 

20 

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coordinated  actions;  and  (iii)  to  increase  the  level  of  cooperation  among  European 
services dealing with customs investigations. 

FIDE  is based  on the Protocol amending the Convention on the use of information 
technology  for  customs  purposes.  In  2005  the  Czech  Republic,  Estonia,  Spain, 
Luxembourg,  the  Netherlands  and  Poland  joined  the  six  Member  States  that  had 
already ratified the protocol56 but it has not yet entered into force. A summary table 
of the state of play with regard to ratification can be found in the Commission staff 
working document published at the same time as this Report.57 

3.3.3.  The Philip Morris International Agreement 

In  2005  nine  Member  States  (Denmark,  Ireland,  Cyprus,  Lithuania,  Malta,  Austria, 
Poland,  Slovenia,  and  Slovakia)  joined  the  Anti-Contraband  and  Anti-Counterfeit 
Agreement  signed  in  2004  between  the  Commission,  ten  Member  States58  and 
Philip Morris  International.  The  Agreement  improved  the  exchange  of  information 
between  the  parties  on  seizures  of  suspect  cigarette  consignments  (bearing 
Philip Morris trademarks) and their day-to-day contacts on operations covered by the 
Agreement.  

4. 

RECOVERY 

In matters of Community expenditure, recovery involves recovering amounts unduly 
paid out owing to errors, irregularities (whether of form or substance) and, albeit less 
frequently, fraud. It helps remedy the injury to the Communities’ financial interests 
in so far as it is possible to do so. This chapter is aimed at outlining – very broadly – 
some  features  of  the  recovery  procedures  applied  in  the  Member  States  and  at 
providing information on the main results of the work of the agricultural “Recovery 
Task  Force”,  set  up  to  examine  the  serious  backlog  affecting  recovery  files  from 
before 1999. 

4.1. 

National recovery procedures involving civil or administrative proceedings 

In matters of indirect expenditure, namely funds administered by the Member States 
on behalf of the Communities, basically the Structural Funds, the Cohesion Fund and 
the EAGGF Guarantee Section, the Member States are responsible for recovery. It is 
their  responsibility  to  pursue  recovery  claims  against  final  beneficiaries  and  to 
transfer the sums in question to the Commission.  

The Member States agreed to report on the rules governing administrative and civil 
recovery  procedures.  The  Commission  collected 
information  using  a 
questionnaire. The Member States’ responses gave the Commission an overview of 
national  recovery  procedures  and  the  judicial  and  administrative  obstacles  (both 
provisional and permanent) that they may encounter. 

this 

56 
57 
58 

Cyprus, Germany, Hungary, Lithuania, Slovenia and Slovakia. 
SEC (2006) … 
Belgium, Germany, Greece, Spain, France, Italy, Luxembourg, the Netherlands, Portugal and Finland. 

EN 

21 

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Further  details  of  each  Member  State’s  recovery  procedures  can  be  found  in  the 
Commission  working  paper  published  at  the  same  time  as  this  report.59  The 
presentation below is no more than a brief summary. 

Obstacles  to  recovery.  Irregularity  attributable  to  administrative  error  - 
"legitimate  expectations".  In  most  Member  States,60  domestic  law  stipulates  that, 
when action for recovery is taken against a debtor acting in good faith on the basis of 
instructions from an administrative authority that was in error, the debtor can oppose 
recovery  invoking  the  “legitimate  expectations”  placed  in  the  instructions.  In  one 
Member State,61 though the concept of legitimate expectations does not exist, debtors 
can invoke the fact that they acted in good faith. Most Member States report that this 
exception  can  be  invoked  only  where  the  administration  issued  erroneous 
instructions62  which  the  debtor  followed  in  good  faith.63  Some  Member  States  also 
lay down other conditions, for instance the lack of serious grounds for withdrawing 
the  benefit  received,64  the  use  of  funds  in  the  specified  manner,65  the  fact  that  the 
debtor  has  adapted  his  situation  to  the  ownership  of  the  sum  to  be  recovered  (by 
investing it)66 or the existence of a public official responsible for having created the 
legitimate  expectations  on  the  part  of  the  debtor.67  Only  four  Member  States68 
reported  that  legitimate  expectations  could  be  invoked  in  the  case  of  serious  or 
deliberate  negligence,  in  which  case  it  is  for  the  judge  to  assess  whether 
circumstances  warrant  the  granting  of  this  exception.  Most  of  the  judicial  systems 
that do not recognise the concept of legitimate expectations allow the debtor to sue 
the administration that issued the erroneous instructions for compensation.69 

Bona fide third parties. National legal systems often allow bona fide third parties 
injured by recovery to oppose it on certain conditions.70 In Member States where this 
right does not exist, third parties can sue persons who caused them injury, including 
public administrations that issued erroneous instructions, for damages. 

59 
60 

61 
62 
63 

64 
65 
66 
67 

68 
69 
70 

SEC (2006) … 
Belgium, Germany, Estonia, Greece, France, Ireland, Italy, Cyprus, Latvia, Austria, Portugal, Finland 
and Sweden. In Poland, this is possible in tax cases; in the United Kingdom, in agricultural cases. 
Slovakia. 
Belgium, Czech Republic, Estonia, Greece, France, Ireland, Latvia, Lithuania, Austria and Poland. 
Germany,  Estonia,  Cyprus,  Italy,  Austria,  Portugal,  Sweden  and  the  United  Kingdom.  In  France  and 
Finland, the law and case law demand more than just good faith and require the change of situation to 
have been unforeseeable by the debtor. 
Belgium. 
Austria. 
Sweden. 
Portugal. Portuguese law, however, does not require that all these conditions be fulfilled; where one of 
the  factors  giving  rise  to  a  legitimate  expectation  is  particularly  telling,  this  can  offset  the  fact  that 
another condition has not been met. 
Denmark, Cyprus, Poland, Sweden.  
Czech Republic, Lithuania, Hungary, Netherlands and Slovakia. 
In Sweden a debt cannot be recovered from a bona fide third party. In France, Italy, Finland, Scotland 
and Slovenia, bona fide third parties can oppose recovery that would injure them, though this is subject 
to certain conditions. In Spain they can do so if they were unaware of Community law because it had 
not been transposed into Spanish law. In Belgium they can oppose recovery in the agricultural sphere. 
In Poland and Slovakia they can do so where they have a claim to goods to be seized. In Austrian law 
the  amount  recovered  may  be  reduced  if  necessary  to  protect  a  bona  fide  third  party  (e.g.  for  wages 
paid). 

EN 

22 

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As  regards  the  concepts  of  legitimate  expectations  and  bona  fide  third  parties,  it 
should be stated that when recovering amounts paid unduly by the Communities, the 
Member  States  must  interpret  these  concepts  without  prejudice  to  Community  law, 
as results in particular from the case law of the Court of Justice. 

Coordination of recovery procedures. In cases of multiple co-financing, the lack of 
an inter-agency system for coordinating recovery procedures can constitute a serious 
obstacle to the recovery of funds. Seven Member States said they had set up a system 
for  coordinating  recovery,71  and  two  allowed  the  authorities  to  cooperate  on  a 
case-by-case basis.72 In Denmark a single administrative authority is responsible for 
recovery of all claims collected or recovered by the public authorities. Two Member 
States  also  reported  that  information  could  be  exchanged  by  consulting  various 
databases.73 

Administrative  recovery  procedure.  In  the  25  Member  States  the  administrative 
recovery  procedure  takes  different  and  specific  forms.  After  the  establishment  of  a 
claim  in  an  administrative  recovery  procedure,  the  first  step  is  usually  to  call  upon 
the  beneficiary  to  pay  the  amount  received  unduly.  The  nomenclature  used  for  the 
administrative  measures  varies  considerably  from  one  Member  State  to  another. 
Whether in the form of a debit note, a recovery decision issued by an administrative 
body, a written reminder, an invoice or an invitation to pay, each State has its own 
particular  administrative  procedure  to  induce  the  beneficiary  to  pay  back  the 
amount  voluntarily  before  enforcement  measures  are 
some 
Member States74 the law stipulates that the beneficiary must first be heard before any 
recovery action is launched. 

taken. 

In 

When called upon to pay voluntarily, the debtor is given a deadline by which he has 
to  return  the  amount  due.  The  deadline  can  be  set  by  law,  by  an  administrative 
decision of the competent body or by administrative practice. The average deadline 
for  voluntary  payment  is  30  days  (deadlines  range  from  15  days  to  two  months), 
although some legal systems do not set any specific time limit. France and Finland 
refer to a “reasonable deadline”.  

Almost  all  Member  States  report  that  administrative  coercive  measures  are  then 
taken  if  debtors  do  not  pay  voluntarily  by  the  deadline  set.  These  measures  take 
different  forms  and  have  different  names  among  the  25  Member  States.  Recovery 
orders,  final  payment  orders  and  execution  orders  are  among  the  most  common 
terms.  In  general  the  deadline  for  the  issuance  of  a  formal  notice  is  one  month, 
although  some  Member  States  apply  shorter  deadlines.  The  deadlines  are  usually 
stipulated by law but can also be set on a case-by-case basis75. 

Enforcement. When the debtor fails to pay, there are two possibilities: enforcement 
measures can be taken on the basis of a court decision or on another legal basis. Most 
of the Member States report that such measures can be decided without the need for 

71 

72 
73 
74 
75 

Belgium (Walloon Region), Estonia, Greece, Latvia (in the area of the Structural Funds), Austria and 
Poland (for agriculture), and Slovakia. 
Cyprus and the United Kingdom. 
Finland and the United Kingdom. 
Greece, Portugal and Finland. 
Ireland, Hungary and Finland. 

EN 

23 

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court  action,  especially  in  cases  concerning  tax  recovery  debts.  In  such  cases  the 
financial  or  tax  administration  authority  is  usually  the  body  responsible  for 
enforcement. In most cases, the coercive measures can be authorised on the basis of a 
court order from the competent jurisdiction (administrative courts76 or civil courts77). 

Administrative contentious procedure. After a court enforcement action has been 
launched,  the  debtor  may  bring  proceedings  before  a  court  in  order  to  challenge 
the recovery order. In almost all Member States the competent court for challenging 
a recovery order is an administrative court. In just a few Member States, the debtor 
may bring an action before the civil courts78. 

If the debtor considers the decision of the court to be unsatisfactory, he may appeal 
against it. An appeal against a court decision has a suspensory effect in some legal 
systems79.  In  some  Member  States  the  court  may  suspend  enforcement  only  if  the 
debtor explicitly requests this80.  

During  the  court  proceedings,  interim  and  precautionary  measures  can  be  taken 
by the court in order to ensure the effectiveness of recovery after the final judgment. 
Such measures may include attachments, mortgages, the lodging of bank guarantees, 
the prohibition of some actions on the assets of the debtor, seizure and confiscation, 
to give only a few examples.  

Precedence  given  to  public  claims.  Some  public  claims,  and  in  particular  tax  and 
customs claims, can be given precedence81 – for instance in collective proceedings – 
enabling  the  holder  of  the  claim  to  have  the  claim  met  even  where  the  total  debts 
exceed  the  value  of  the  assets.  Examination  of  the  Member  States’  contributions 
suggests that public claims connected with aid (national and Community) do not take 
precedence and are dealt with exactly like other claims, unless there are contractual 
guarantees.  

Recovery  by  offsetting.  Offsetting  –  the  definition  of  which  varies  from  one  legal 
system  to  another  –  generally  consists  of  cancelling  two  debts  by  setting  them  off 
against  each  other.  It  is  a  highly  effective  means  of  recovering  public  money, 
provided  that  it  is  permitted  under  national  law  and  that  the  debtor  has  a  credit  or 
claim  (or  a  combination  of  the  two)  on  the  public  authorities  that  lends  itself  to 
offsetting. 

As regards the public funds of the Member States in general, all legal systems bar 
two82 recognise offsetting, though its definition and scope vary from one country to 
another.  Most  Member  States  say  they  apply  offsetting  for  all  public  funds, 

76 
77 
78 
79 

80 
81 

82 

Estonia, Greece, Netherlands, Portugal and Finland. 
Czech Republic, Italy, Cyprus, Latvia, Austria, Poland, Slovakia and Sweden. 
Belgium, Spain, Ireland, Italy and Austria (in some cases). 
Belgium, Germany, Cyprus, Ireland, Latvia, Lithuania, Austria, Finland, Sweden and United Kingdom. 
No suspensory effect: Czech Republic, Greece, Spain, France, Italy, Netherlands, Poland, Portugal and 
Slovakia. 
Spain, Greece, Luxembourg, Czech Republic. 
A number of Member States reported that tax or customs debts take precedence: Czech Republic, Spain, 
France, Ireland, Cyprus, Lithuania, Hungary, Netherlands and Slovakia. 
Malta and Lithuania. 

EN 

24 

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regardless of the field or sector.83 Others offset public funds within the same field or 
sector.84 In some Member States offsetting can be used solely for recovery in the tax 
sector.85  

With regard to Community funds, all Member States bar two86 use offsetting where 
they can to speed up recovery. There are, however, substantial differences in the way 
it is applied. Sometimes it is possible, for instance, to clear debts and claims for the 
same  programme  or  project,87  the  same  paying  agency88  or  the  same  managing 
authority.89 In some Member States offsetting is applied more widely, for instance to 
the  debts  and  claims  of  paying  agencies  that  have  set  up  a  coordination  system.90 
Two Member States91 stated that a tax claim could be offset by Community funds but 
there is no detailed information on this subject. 

4.2. 

Recovery by the institutions 

In  the  areas  where  funds  are  managed  directly  by  the  institutions,  amounts  unduly 
paid are recovered directly by them, without the intervention of the Member States.  

The  Financial  Regulation  and  its  implementing  rules  set  out  the  different  stages  in 
the  recovery  procedure:  estimate  and  establishment  of  the  entitlement  by  the 
authorising officer (who must ensure that the claim is certain, of a fixed amount and 
due),  establishment  of  a  recovery  order  (instruction  from  the  authorising  officer  to 
the  accounting  officer  to  proceed  with  recovery)  followed  by  a  debit  note  to  the 
debtor, and finally recovery by the accounting officer. For this the accounting officer 
will, if possible, recover by offsetting if the debtor has a claim on the Communities 
that is certain, of a fixed amount and due.  

The  debtor  can  be  allowed  additional  time  for  payment  by  making  a  request  in 
writing explaining the reasons and provided he undertakes to pay interest and lodges 
a financial guarantee. 

If, after reminders and letters of formal notice have been sent, the debtor has not paid 
the debt and the accounting officer has not been able to recover the amount due by 
offsetting or calling in a bank guarantee, the authorising officer determines, without 
delay, what method of enforced recovery should be applied to the debt.  

There are two mutually exclusive ways of obtaining an enforceable order to seize the 
debtor’s assets: 

83 

84 
85 
86 
87 
88 
89 
90 
91 

Denmark,  Greece,  Spain,  France,  Hungary,  Netherlands,  Austria,  Poland,  Portugal,  Slovenia  and 
Slovakia. 
Latvia, Finland and United Kingdom. 
Belgium, Czech Republic, Netherlands and Sweden. 
Malta and Lithuania, where the mechanism does not exist at all. 
Denmark (for the Social Fund), Estonia, Portugal. 
Belgium, Austria and Finland. 
Czech Republic, Greece, Latvia and Netherlands. 
France, Italy, Poland, Slovenia and Slovakia. 
Denmark (for agriculture) and Hungary. 

EN 

25 

   EN 

 
                                                 
– 

adoption of a decision constituting an enforceable order within the meaning of 
Article 256 EC (in this case the institution formalises the establishment of the 
entitlement in a decision which constitutes an enforceable order), 

– 

securing of an order before the national or Community courts. 

The authorising officer is not free to choose  between these two possibilities. When 
the Commission’s claim falls within the scope of the enforceable decision within the 
meaning  of  Article  256  EC  (grants  satisfying  certain  criteria),  recovery  is  not 
possible without such a decision. In this case the overall time between establishment 
of the claim and actual recovery can be shortened considerably. 

4.3. 

The Recovery Task Force and the EAGGF Guarantee Section 

In  2002,  the  Commission  announced  the  setting-up  of  a  Recovery  Task  Force 
(RTF)92  to  examine  the  considerable  backlog  of  recovery  cases  concerning  the 
EAGGF  Guarantee  Section.  It  is  up  to  the  RTF  to  draw  up  decisions  on  financial 
liability under the formal clearance procedure in the EAGGF Guarantee Section for 
unrecovered amounts resulting from an irregularity notified to the Commission prior 
to 1999. 

On the basis of the on-the-spot audits by the RTF carried out in 2004, proposals were 
drawn up on the financial liability for a total non-recovered amount of approximately 
€765  million  resulting  from  431  cases  of  irregularity  (each  exceeding  €500  000). 
These  were  discussed  in  detail  with  all  the  Member  States  concerned  in  2005  in 
formal bilateral meetings under the current legal framework, in particular as regards 
compliance with the formal recovery obligations of the Member States. 

In 2005 the RTF also audited 32 cases of amounts each exceeding €500 000 that had 
not been audited earlier. Official letters concerning financial liability were sent to the 
Member  States  in  question,  along  with  the  financial  corrections  proposed  by  the 
Commission, for a total amount of approximately €92 million. 

For 3 227 cases each with a value of less than €500 000 communicated before 1999, 
a  document  audit  using  SAGE  (an  automated  management  and  evaluation  system) 
was launched in 2005. For these cases the formal clearance procedure will be carried 
out  in  accordance  with  the  mechanism  introduced  by  Council  Regulation  (EC) 
1290/2005, which came into force on 16 October 200693. The following table gives 
an overview of the work of the RTF and the amounts concerned.  

Overview of non-recovered amounts from EAGGF Guarantee irregularities 
communicated by Member States under Regulation (EC) 595/91 

Total 

Cases>€500 000 

Cases<€500 000 

92 
93 

See reference at point 1.1. 
Council Regulation (EC) No 1290/2005 of 21 June 2005 on the financing of the common agricultural 
policy (OJ L 209, 11.8.2005). See point 4.3. 

EN 

26 

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Cases  Amount 
(€million)

Cases 

Amount 
(€million) 

Cases  Amount 

(€million) 

4 228 

1 212 

419 

1 035 

3 809 

177 

3 690 

1 059 

463 

857 

3 227 

202 

Initial  situation  end 
2002.  Non-recovery 
cases 
communicated 
before 1999, subject to 
Task  Force  Recovery 
audits 

Situation  end  2004 
after TRF audits 

For  all  463  cases  involving  more  than  €500  000,  the  audits  were  completed  in  the 
course  of  2005.  These  cases  account  for  non-recovered  amounts 
totalling 
€857 million.  

Progress made in 2005 

Cases 

Amount (€ million) 

A. Audits and bilateral 
meeting  finalised  with 
in  clearance  of 
MS 
accounts 
procedure 
(cases  >  €500  000 
each) 

B.  Audit  completed 
but  not  yet  discussed 
with  MS  in  clearance 
of  accounts  procedure 
(cases  >  €500  000 
each) 

C.  Cases  <  €500 000 
not  processed/audited 
by  TRF 
no 
clearance  of  account 
procedure started 

and 

431 

32 

3 227 

765 

92 

202 

In 2006 a formal Commission decision will be adopted under the EAGGF Guarantee 
clearance of accounts procedure for most cases exceeding €500 000. 

EN 

27 

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4.4. 

Reform  of  the  system  of  financial  monitoring  of  irregularities  in  agricultural 
policy 

By  adopting  Regulation  (EC)  No  1290/2005,  the  Council  mapped  out  the  future 
financing  of  the  common  agricultural  policy94.  It  decided  to  set  up  two  separate 
European  agricultural  funds,  namely  the  European  Agricultural  Guarantee  Fund 
(EAGF) to finance, among other things, market measures and direct payments, and 
the European Agricultural Fund for Rural Development (EAFRD). 

The  new  Regulation  reforms  the  entire  system  of  financial  monitoring  of 
irregularities affecting these two new Funds (EAGF and EAFRD) and simplifies the 
procedure  for  monitoring  recovery  in  future.  Under  Articles  32  and  33  of  the 
Regulation,  if  recovery  has  not  taken  place  within  four  years  of  the  primary 
administrative  or  judicial  finding,  or  within  eight  years  where  recovery  action  is 
taken in the national courts (for the EAGF and the EAFRD), or prior to the closure of 
the  financial 
a  rural  development  programme  (for 
consequences  will  be  borne  by  the  Member  State  concerned  and  50%  by  the 
Community budget. 

the  EAFRD),  50%  of 

5. 

PROCEDURES FOR CERTIFYING THE ACCOUNTS 

5.1. 

Roadmap for a positive statement of assurance 

Although  it  acknowledged  the  progress  made  by  the  Commission  and  the 
Member States  in  improving  their  budgetary  control  systems,  for  the  eleventh 
consecutive  year  the  Court  of  Auditors  could  only  deliver  a  partially  positive 
statement of assurance for payment appropriations under the Community budget. The 
main  problem,  according  to  the  Court’s  reports,  relates  to  the  funds  whose 
management is shared with the Member States. In Opinion No 2/2004,95 the Court of 
Auditors  proposed  a  Community  internal  control  framework,  based  on  common 
standards  and  principles,  which  could  provide  a  reasonable  assurance  that  revenue 
collection  and  expenditure  had  been  executed  in  accordance  with  the  legislation  in 
force,  while  at  the  same  time  taking  into  account  the  equilibrium  between  the  cost 
and  the  advantages  of  internal  control.  Obtaining  a  positive  DAS  is  one  of  the 
Barroso  Commission’s  strategic  objectives.96  To  that  end,  following  the  Court’s 
opinion, the Commission adopted in June 2005 a roadmap which makes a number of 
proposals  for  an  integrated  Community  control  framework.97  In  this  document,  the 
Commission referred to the proposal made by the European Parliament at the time of 
the 2003 discharge in which it suggested a provision on the ex ante publication in a 
formal  statement,  and  an  ex  post  annual  statement  of  assurance  on  the  legality  and 
the  political  authority  and 
transactions  from 
regularity  of 
highest-ranked manager in each Member State (the Finance Minister). This roadmap 

the  underlying 

94 

95 

96 
97 

Council Regulation (EC) No 1290/2005 of 21 June 2005 on the financing of the common agricultural 
policy (OJ L 209, 11.8.2005). 
Opinion No 2/2004 of the Court of Auditors of the European Communities on the “single audit” model 
(and a proposal for a Community internal control framework) (OJ C 107, 30.4.2004). 
Strategic objectives 2005-2009 (COM(2005) 12 of 26 January 2005). 
Communication from the Commission to the Council, the European Parliament and the European Court 
of Auditors on a roadmap to an integrated internal control framework (COM(2005) 252). 

EN 

28 

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was  accompanied  by  a  gap  assessment  between  the  internal  control  framework 
within  Commission  departments  and  the  control  principles  set  out  in  Court  of 
Auditors’ Opinion No 2/200498 (“gap assessment”). 

On  the  basis  of  these  Commission  documents  and  the  discussions  of  a  group  of 
experts  from  the  national  administrations  of  the  Member  States,  the  ECOFIN 
Council adopted conclusions on 8 November 2005 in which it took the view that “the 
existing  statements  at  the  operational  level  may  constitute  a  significant  level  of 
assurance  for  the  Commission  and  ultimately  for  the  Court  of  Auditors  and  should 
prove  useful  and  provide  a  satisfactory  cost-effectiveness  ratio  and  be  taken  into 
account  by  the  Commission  and  ultimately  by  the  Court  of  Auditors  in  order  to 
obtain a positive statement of assurance”. The Council called on the Commission to 
provide an assessment of the controls and the value of the existing statements. 

Taking into account the conclusions of the Council, in January 2006 the Commission 
adopted an action plan for an integrated control framework99 in which it stated that it 
was  important  that  the  Member  States  “ensure  that  their  management  of 
appropriations  in  the  name  of  the  Commission  reduces  the  risk  of  irregularities  in 
expenditure  to  an  acceptable  level  and  are  in  a  position  to  demonstrate  this  to 
national  and  Community  auditors”.  Since  the  management  of  80%  of  Community 
expenditure  is  shared  with  the  Member  States,  the  emphasis  is  on  simplifying 
legislation  for  the  2007-2013  programming  period,  on  harmonising  the  control 
principles  and  standards  applied  by  the  Commission  and  the  Member  States  by 
sharing the results of the control and promoting profitability, and on making use of 
the existing management declarations of operational agencies in the Member States, 
which  are  a  major  source  of  assurance  for  the  Commission  and,  ultimately,  for  the 
Court of Auditors too. 

5.2. 

Procedure  for  certifying  proper  implementation  of  public  expenditure  in  the 
Member States 

information  on 

The Commission and the Member States judged that it was in both their interests to 
collect 
the  proper 
implementation of public expenditure in the Member States in order to extract best 
practice.  Moreover,  this  exercise  could  be  used  to  examine  application  of  the 
principle of equivalent protection enshrined in Article 280 of the Treaty. 

the  existing  certification  systems 

for 

On  the  basis  of  the  replies  to  the  questionnaire  sent  to  the  Member  States,  it  was 
possible  to  obtain  a  picture  of  national  practices  in  this  field,  which  are  presented 
below in the form of a table.  

This table provides a summary of the answers given by the Member States. A more 
comprehensive summary containing the detail of the answers can be consulted in the 
Commission working paper published at the same time as this report.  

98 

99 

Commission working paper concerning the gap assessment between the internal control framework in 
the  Commission  services  and  the  control  principles  set  out  in  the  Court  of  Auditors’  “proposal  for  a 
Community internal control framework” Opinion No 2/2004 (SEC(2005) 1152). 
Commission Action Plan towards an Integrated Control Framework (COM(2006) 9). 

EN 

29 

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Certification  of 
national 
accounts  by  an 
internal body100 

Certification of national 
accounts by an external 
body101 

No 

Yes 

Yes 

No 

Yes 

No 

No 

No 

Yes 

No 

No 

Yes 

Yes 

Yes 

Yes 

No 

Yes 

No102 

No103 

Yes 

Yes 

Yes 

No 

No104 

Yes 

Yes 

Yes 

Yes 

Yes 

Yes 

Yes 

Yes 

Yes 

Yes 

BE 

CZ 

DK 

DE 

EE 

EL 

ES 

FR 

IE 

IT 

CY 

LV 

LT 

LU 

HU 

MT 

NL 

100 

101 

102 
103 

104 

Internal body: individual, department or service dependent on the management and/or payment service 
for the budget to be certified. 
External body: individual, department or service that is independent of the management and/or payment 
service for the budget to be certified. The annual reports adopted by external bodies and submitted to 
the national parliament are regarded as account certification systems. 
The certification of accounts by an external body does, however, exist for the budget of certain regions.  
There  is no  obligation  for  certification, but  the  Czech  Republic's  supreme  audit  institution submits  to 
the  Parliament  its  opinion  on  the  implementation  of  the  budget  and  the  final  state  of  the  accounts. 
However, these opinions do not have the status of an audit.  
There is no obligation for certification, but the Court of Auditors taxes the general state account and the 
other  public  sector  accounts,  and  also  manages  the  public  sector  in  terms  of  legality  and  rationality 
(efficiency and economy). 

EN 

30 

   EN 

 
 
                                                 
AT 

PL 

PT 

SL 

SK 

FI 

SE 

UK 

No 

No 

No 

No 

Yes 

Yes 

No 

Yes 

No105 

Yes 

Yes 

Yes 

Yes 

Yes 

Yes 

Yes 

Certification by an internal body 

Approximately  half  of  the  Member  States  who  replied  to  the  questionnaire  possess 
an  internal  certification  procedure  to  ensure  the  legality  and  regularity  of  public 
expenditure106. Among them, only Latvia stated explicitly that this certification also 
concerned funds allocated by the European Community and managed by the national 
public  administration.  It  should  nevertheless  be  pointed  out  that,  often  the 
certification  is  delivered  at  management  level  and  not  by  an  internal  auditor 
proper107. In a significant number of cases, the bodies responsible for delivering the 
certification also issue an opinion on the total amount likely to be recovered by the 
paying  agencies108.  Certification  by  an  internal  body  is  sometimes  delivered  at 
national  level109;  in  other  cases,  it  is  delivered  at  the  level  of  the  management 
department or agency110. The individual cases of the United Kingdom and Slovakia, 
where  there  are  several  levels  of  certification  (national  level,  regional  level  and  by 
fund),  should  also  be  noted.  These  certifications  issued  by  an  internal  body  are 
submitted to the national parliaments in some cases only111. 

Some Member States112 have  an internal auditing system  to ensure  the legality  and 
regularity  of  the  national  accounts  even  in  the  absence  of  a  legal  obligation  for 

105 

106 

107 
108 
109 
110 
111 
112 

Even  if  Austria’s  Court of Auditors  is not obliged  to provide  certification of  the  reliability  of  federal 
and provincial accounts, the Court checks that the utilisation of public funds is in compliance with the 
principles of reliability, legality, regularity, economy, efficiency and effectiveness. 
Denmark, Estonia, Ireland, Latvia, Luxembourg, Hungary, Netherlands, Slovakia, Finland and United 
Kingdom.  
Certification is delivered by an internal auditor in Estonia, Netherlands and Slovakia only. 
Denmark, Estonia, Latvia, Lithuania, Luxembourg, Slovakia and United Kingdom. 
Czech Republic, Lithuania, Luxembourg, Hungary and Netherlands. 
Estonia, Ireland, Latvia and Finland.  
Czech Republic, Lithuania, Slovakia and United Kingdom. 
France, Italy, Cyprus, Lithuania, Malta, Greece and Portugal. 

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31 

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certification  by  an  internal  body.  Among  them,  two  indicated  that  these  audits 
concerned Community funds113.  

According to the responses of the Member States who possess an internal control and 
audit system, the most widespread standard appears to be INTOSAI. 

Certification by an external body  

A large majority of Member States declared that they had a legal obligation to obtain 
from an external body an annual certification that ensured the legality and regularity 
of public expenditure. The only exceptions were Spain, Italy and Austria. However, 
it should be noted that, in the case of Greece, Spain and Italy, the Court of Auditors 
delivers an annual report rather than a certification. 

In most cases, this external body is a public body corresponding to the highest state 
auditing body. Certifications are delivered at national level in most countries114. They 
concern  the  entire  budget115  and,  in  all  cases,  are  submitted  to  the  national 
parliaments, particularly to certify the legality and efficiency of the management of 
national  accounts.  Only  in  some  Member States  do  the  certifications  provide  an 
opinion on the total amounts likely to be recovered116. 

Control of Community funds (funds in shared management) 

In their replies to the questionnaire the Member States indicated that more than half 
of the national certification bodies provided for in Article 3 of Regulation (EEC) No 
1663/1995  for  the  EAGGF  Guarantee  Section  fulfil  the  necessary  conditions  for 
recognition  by  the  national  authorities  as  certifiers  of  national  accounts117.  In  cases 
where  they  do  not  fulfil  the  conditions,  the  Member States  explain  this  by  the 
absence  of  a  legal  basis  and  by  the  fact  that  the  bodies  were  established  with  the 
specific objective of managing and controlling Community funds. In all such cases, 
with  the  exception  of  Estonia,  the  Netherlands  and  Sweden,  these  bodies  also  give 
their opinion on the amounts likely to be recovered by paying agencies.  

In  the  case  of  the  Structural  Funds,  only  a  small  proportion  of  national  services 
responsible for issuing the certificate of validity on the winding-up of a programme, 
as  provided  for  in  Article  38  of  Regulation  No 1260/1999  and  Article  15  of 
Regulation  No 438/2001118,  are  apparently  also  responsible  for  the  certification  of 
national accounts119. 

113 
114 

115 
116 
117 

118 

119 

Lithuania, Greece and Malta.  
The only exceptions are Belgium (federal and regional level), Germany (certifications at a federal and 
regional  level),  Finland  (certifications  at  the  level  of  the  accounting  office)  and  United  Kingdom 
(certifications at national level and at project level). 
In the case of Poland, certification by an external body is limited to agricultural expenditure. 
Cyprus, Estonia, Hungary, Lithuania, Latvia, Luxembourg, Slovakia and United Kingdom.  
Czech  Republic,  Greece,  France,  Cyprus,  Latvia,  Lithuania,  Luxembourg,  a  few  Austrian  provinces, 
Poland, Slovenia, Slovakia, Finland and the United Kingdom.  
In addition to the certificate issued by an independent person or body when a programme is wound up, 
the paying authority certifies all the declarations of expenditure that are presented to the Commission 
several times a year. 
Italy (for national co-financing), Lithuania, Netherlands and Slovakia.  

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32 

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Most  Member States120  have  indicated  that  the  certification  bodies  give  an  opinion 
on the amounts likely to be recovered. 

Conclusions 

The  majority  of  national  rules  make  provision  for  certification  on  the  national 
accounts  to  be  obtained  from  an  independent  external  body,  almost  always  the 
Supreme Auditing Institution (SAI) at national level. In most cases, the audits carried 
out  by  the  SAI  concern  the  entire  budget,  and  the  audit  reports  or  certifications  of 
accounts are submitted to the national parliaments.  

The  obligation  to  obtain  a  certification  delivered  by  an  internal  body  is  not  so 
widespread.  Around  ten  Member  States  only  make  such  provision.  As  a  result,  the 
situation is more diverse than in the case of certifications by an external body. In a 
few  cases  the  certification  is  delivered  not  by  an  auditor  but  at  the  level  of  the 
department in charge of management. 

The  Commission  considers  that  these  documents,  in  cases  where  they  also  concern 
Community  funds,  could  provide  an  additional  degree  of  assurance  demonstrating 
the correct usage of European funds. The Court of Auditors could also consider the 
possibility of taking them into consideration to guarantee the legality and regularity 
of the accounts of the European budget.  

120 

Denmark,  Germany,  Ireland,  Italy,  Latvia,  Lithuania,  Luxembourg,  Hungary,  Austria,  Slovenia, 
Slovakia, Finland and United Kingdom. 

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33 

   EN