Communication from the Commission to the Council, the European Parliament and the European Court of Auditors - Prevention of fraud by building on operational results: a dynamic approach to fraud-proofing {SEC(2007) 1676}
Date: 2007-12-17
Institutions: European Commission
Subjects: Community budget, European Anti-fraud Office, contract, corruption, financial management, fraud, fraud against the EU, management audit

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 17.12.2007 
COM(2007) 806 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, THE 
EUROPEAN PARLIAMENT AND THE EUROPEAN COURT OF AUDITORS 

Prevention of fraud by building on operational results:  
a dynamic approach to fraud-proofing 

{SEC(2007) 1676} 

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1. 

INTRODUCTION 

Fraud, corruption and other illegal activities affecting the European Union’s financial 
interests  exploit  weaknesses  in  or  circumvent  the  processes  in  place  for  managing 
and controlling EU funds. In order to prevent fraud and corruption in all sectors of 
the  EU  budget  —  on  both  revenue  and  expenditure  sides1,  it  is  therefore  of  the 
utmost importance that the authorizing services with OLAF's assistance continue to 
improve the prevention of fraud in the framework of financial management2.  

This  communication  sets  out  the  Commission’s  new  approach  to  fraud-proofing 
legislation,  contracts,  and  management  and  control  systems.  It  replaces  the 
contract 
Commission 
management3adopted  by  the  Commission  on  7  November  2001  with  a  view  to 
implementing action 94 of the White Paper Reforming the Commission4.  

communication  on 

fraud-proofing 

legislation 

and 

2. 

BACKGROUND 

2.1. 

OLAF and the reform 

The European anti-fraud office (OLAF) was created in 1999. It fulfils its mission of 
combating  fraud  by  conducting  investigations  as  independent  office,  and  by 
contributing to the design of the EU’s anti-fraud strategy and preparing the necessary 
initiatives to create or strengthen legislation as a Commission department.  

In  2000,  the  Commission  embarked  on  administrative  reform5.  The  financial 
management system was modernised by expanding the responsibilities of authorising 
officers and by increasing their accountability. 

The White Paper Reforming the Commission contained measures to make better use 
çof  the  expertise  available  within  the  institutions  to  improve  the  prevention  of 
irregularities  and  fraud.  This  prevention  policy  was  detailed  further  in  the 
Commission  communication  Protection  of  the  Communities’  financial  interests  —
The fight against fraud — For an overall strategic approach6. 

Action 94 of the White Paper on reform, ‘Fraud-proofing of legislation and contract 
management’, introduced the following commitment: 

“To render the present system of fraud-proofing more effective, Commission services 
will  be  required,  when  proposing  new  legislation  with  a  potential  impact  on  the 

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3 

4 
5 
6 

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, p. 1. 
Council  Regulation  (EC,  Euratom)  No  1605/2002  of  25  June  2002  on  the  Financial  Regulation 
applicable to the general budget of the European Communities, as amended by Council Regulation (EC, 
Euratom) No 1995/2006 of 13 December 2006. 
Commission  communication  concerning  the  fraud-proofing  of  legislation  and  contract  management, 
SEC(2001) 2029, 07.11.2001 — not published in the OJ. See, however, point 3.3. 
Reforming the Commission — A White Paper — Part I (COM/2000/0200 final). 
White Paper ‘Reforming the Commission’, Part II (Action Plan), of 5 4 2000., COM (2000) 200 final/2. 
COM(2000) 358 final. 

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Community budget, to submit draft proposals to OLAF for a risk assessment during 
inter-service consultations. DG Budget will be assisted by OLAF in the review of the 
Commission’s  systems  for  contract  management  (e.g.  standard  contracts,  central 
contracts  database,  management  tools).  OLAF  will  also  provide  advice  on  fraud-
proofing throughout the legislative process.” 

2.2. 

The communication on fraud-proofing of legislation and contract management 

The  purpose  of  the  2001  communication  on  fraud-proofing  was  to  achieve  the 
objectives of the White Paper on reform and of the Commission communication on 
the overall strategic approach to fighting fraud. Those objectives were to develop a 
culture of prevention and to strengthen the capacity of the basic legal instruments to 
withstand fraud or any other illegal activity. The prevention mechanism laid down in 
the 2001 communication covered two aspects: legislation and contract management. 

Legislative  fraud-proofing  was  limited  to  the  most  vulnerable  items  of  legislation. 
Identifying  vulnerable  fields  of  European  policies  in  advance  made  it  possible  to 
better 
introduced  a 
the  consultation  procedure.  The  communication 
cooperation process in four phases:  

target 

(a) 

definition of criteria to identify high risk sectors;  

(b) 

identification of high risk sectors;  

(c) 

identification of legislative initiatives needing fraud-proofing analysis 
before adoption, and  

(d) 

upstream consultation of OLAF. 

Preventing fraud  and irregularities in contract management — the second aspect of 
the 2001 communication — was pursued at two levels: 

(a) 

(b) 

Establishment  of  standard  procurement  contracts  and  standard  grant 
agreements  at  central  level  (the  Directorate-General  for  the  Budget), 
clauses and procedures for procurement contracts and for grants were 
harmonised: contracts and standard agreements suitable for use by all 
Commission  departments  were  drafted,  and  guides  and  guidelines 
(vade mecums, circulars etc.) were published. 

At contract management department level, various instruments were to 
be  developed, 
the  Commission  departments 
independently.  Some  of  these  are  of  individual  interest,  such  as 
standard  contracts  and  local  databases,  which  may  or  may  not 
interface with the general accounting database of the Commission. 

to  be  used  by 

2.3. 

The need for a new approach to fraud proofing 

The  objectives  of  the  fraud-proofing  procedure  have  been  achieved.  OLAF  was 
closely involved in the successive revisions of legislation applicable to the execution 
of  the  EU  budget  and  in  the  adoption  of  basic  acts  and  standard  instruments 
developed  by  Commission  departments  to  implement  the  EU  budget.  For  more 
details see the attached report on the achievements of the fraud-proofing procedure. 

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The most important financial provisions for the forthcoming years have already been 
fraud  proofed,  either  through  the  formal  fraud-proofing  procedure  or  through 
interservice  consultation.  Standard  anti-fraud  provisions  have  been  drafted  and  the 
legal  framework  laying  down  the  rules  for  EU  financial  management  is  entering  a 
period  of  stability.  Consequently,  the  preventive  mechanism  set  out  in  the  2001 
communication  now  appears  to  be  less  appropriate  in  the  current  context. 
Furthermore,  the  new  approach  will  contribute  to  the  same  objectives  that  the 
Internal Control Standards for Effective Management, notably standards 2,7 and 8.” 

In  addition,  the  Commission  supports  a  policy  of  “simplification”  which  is  partly 
intended “to pursue further consolidation, streamlining and simplification of internal 
procedures and working methods in the interests of effectiveness and efficiency and 
to  strike  a  better  balance  between  the  level  of  risk  and  the  cost  of  control”7.  It  is 
therefore appropriate to make upstream consultation of OLAF more flexible. 

3. 

THE NEW APPROACH 

3.1. 

Concept of the new approach 

The new approach to fraud-proofing will be mainly based on the lessons learnt from 
OLAF’s operational experience. Exploitation of operational results will set up a new 
link  between,  experience  on  the  ground  and  the  measures  adopted  by  the  different 
Institutions to avoid fraud and irregularities. OLAF will better exploit the knowledge 
it has gained from operational and intelligence activities and will make it available to 
other Commission departments and to EU institutions and bodies.  

The  new  approach  entails  identifying  the  lessons  to  be  learnt  from  the  results  of 
investigative  activities  and  intelligence  analysis  and  communicating  them  to  the 
appropriate authorities. For instance, OLAF will support departments implementing 
Community  policies  in  their  efforts  to  protect  the  Communities’  financial  interests 
and it will issue recommendations for ensuring the highest possible security against 
fraud, corruption, and irregularities.  

To  be  effective,  this  approach  requires  the  competent  authorities/departments  to 
follow up these measures. 

Systemic  irregularities  and  weaknesses  will  receive  special  attention,  in  particular 
where  straightforward  and  low-cost  solutions  are  feasible  (e.g.  improving  standard 
templates  and/or  documents  such  as  declarations  of  absence  of  conflict  of  interest, 
exchanging data between different departments, amending vade mecums, etc.). 

3.2. 

Expected improvements  

The  results  of  the  revised  fraud-proofing  approach  are  expected  to  enhance  the 
impact  of  investigations  on  preventing  fraud,  corruption,  irregularities  and  other 
illegal activities affecting the EU’s financial interests.  

7 

Communication from the Commission to the European Parliament and to the Council ‘Progress Report 
on the Commission Reform Beyond the Reform Mandate’ COM (2005) 668 final, of 21 12 2005. 

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The output will be a more proactive, supply-based flow of information. This flow of 
information  will  be  independent  of  the  Commission  interservice  consultations  on 
initiatives relating to financial management. 

OLAF  will  extend  the  scope  of  its  support  to  other  Commission  departments  by 
offering  targeted  analysis  based  on  its  own  investigative  and  intelligence  activities. 
The  output  from  fraud-proofing  will  be  made  available  to  all  the  departments,  EU 
institutions and bodies concerned (see points 5.1, 5.2 and 5.3). 

3.3. 

Availability of the current consultation process 

The  current  upstream  consultation  process  on  draft  legislation  set  out  in  the  2001 
communication  (and  on  any  specific  risks  or  concerns  identified  by  the  department 
responsible for the proposal) will remain available to Commission departments upon 
request. An overview of the kind of instruments subject to this process is included in 
the  attached  Commission  Staff  Working  Paper  on  the  achievements  of  the  2001 
communication. 

For  the  adoption  of  standard  procurement  contracts  and  of  standard  grant 
agreements, the upstream consultation approach will be maintained. DG Budget will 
continue  to  update,  following  experience  and  revised  legislation,  the  existing 
standard  contracts  and  grant  agreements/decisions  and  develop  new  models  where 
necessary. 

4. 

THE PROCESS FOR IMPLEMENTING THE NEW APPROACH 

Within  the  new  approach,  investigative  activities  will  feed  the  deliverables 
transmitted  to  the  Commission  departments,  EU  institutions  and  bodies  concerned 
while  intelligence  activities  will  provide  assessment  of  risks  for  thematic  fraud-
proofing.  

Fraud-proofing  and  intelligence  will  complement  each  other:  the  fraud-proofing 
process will identify issues deserving a thorough, thematic approach to be carried out 
through intelligence methods and intelligence will deliver data exploitable for fraud-
proofing deliverables. 

4.1. 

A large pool of information 

The  process  for  implementing  the  fraud-proofing  approach  does  not  exclude  any 
source of information.  

OLAF  will  analyse  its  investigative  activities  in  a  structured  and  multidisciplinary 
manner.  This  analysis  will  include  information  resulting  from  internal  and  external 
investigations, and other operational activities carried out by OLAF. 

In  addition  to  the  legal  obligation  to  inform  the  Commission  and  OLAF  of  any 
concrete indications of suspected fraud, the new fraud proofing approach will allow 
for a better flow of information between control bodies. Results of audit work will be 
included in the information pool, especially the relevant findings of audits performed 
by the Internal Audit Service (IAS). This Service will inform the Office of potential 
systemic irregularities likely to constitute a risk of fraud identified during its audits. 

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The  same  information  on  potential  systemic  irregularities  should  be  provided  to 
OLAF by both the Internal Audit Capacities (IACs) and the ex-post control entities 
of the operational departments (data from the ABAC Audit tool). 

Where appropriate, the European Court of Auditors’ reports and findings, and audit 
reports  from  authorising  Directorates-General,  will  enrich  fraud-proofing  analysis. 
Annual  Activity  Reports  and  other  management  reports  clearly  identifying 
vulnerabilities  and  measures  adopted  following  OLAF  recommendations  will 
complete the analysis. 

Information  from  Member  States’  authorities,  including  audit  and  control  bodies, 
will be used to further contribute to the new approach. The irregularities notified by 
national  authorities  under  Community  legislation8  provide  indications  of  potential 
risks. National case law directly linked to the protection of EU financial interests will 
not be excluded from the fraud-proofing analysis. 

4.2.  Main steps of the fraud-proofing process 

The main steps of the process are the following: 

(1) 

(2) 

(3) 

(4) 

(5) 

Information is collected from investigations and other operational results, and 
from  other  external  sources  (referred  to  in  4.1).  The  information  collected 
from  individual  cases  will  be  completely  anonymised  in  order  to  avoid 
disclosure of personal, confidential or sensitive data; 

to 
Analysis 
of 
weaknesses/vulnerabilities 
legislation, 
management/control systems and analysis of sets of cases; 

information 
either 

collected 
in 

the 

identify 

possible 
or 

contracts 

Identification  of  recommendations  to  avoid  the  weaknesses  identified  or  to 
improve proofing to fraud, corruption and other illegal activities; 

Findings  and  recommendations  are  transmitted  to  Commission  departments, 
EU institutions and bodies concerned; 

Feedback is received from Commission departments and from EU institutions 
and bodies.  

5. 

RECOMMENDATIONS AND OTHER INSTRUMENTS FOR INFORMATION SHARING 

The  process  described  is  designed  to  produce  recommendations  and  fraud-proofing 
output.  These  will  be  directly  addressed  to  the  Commission  departments,  EU 
institutions and bodies concerned either individually or collectively, in particular for 
“policy families”. 

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Commission Regulation (EC) No 1681/94 of 11 July 1994 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  178,  12.7.1994,  p.  43–46  and  Commission  Regulation  No 
1848/2006  concerning  irregularities  and  the  recovery  of  sums  wrongly  paid  in  connection  with  the 
financing of the common agricultural policy and the organisation of an information system in this field 
and repealing Council Regulation (EEC) No 595/91 

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The recommendations issued by OLAF will not be of a binding nature. They will be 
discussed, where appropriate, through an open and flexible dialogue with addressees.  

Their implementation falls under the responsibility of Commission departments, EU 
institutions  and  bodies  concerned,  including  evaluation  of  the  cost/benefit,  and  the 
administrative burden of such implementation,  

5.1. 

On a case-by-case basis  

OLAF  will  provide  ad  hoc  recommendations  where  the  protection  of  the  EU’s 
financial  interests  require  particular  action  from  the  department,  EU  institution  or 
body concerned. 

The department concerned will be invited to consider adopting and/or implementing 
appropriate action to remove or mitigate specific risks or vulnerabilities identified by 
OLAF. In addition, the Commission departments concerned will feed OLAF back on 
the  actions  undertaken  to  prevent  damage  to  the  EU’s  financial  interests,  and  EU 
institutions and bodies will be requested to do so. 

5.2. 

General recommendations and compendium of common cases  

Recommendations will also be made broadly available to stakeholders based on the 
risk analysis and fraud patterns resulting from the review of a set of common cases 
presenting  similarities  in  the  irregularities  found.  The  Commission  departments 
concerned will feed OLAF back on the measures which they subsequently undertake 
to avoid similar situations within their responsibilities and EU institutions and bodies 
will be requested to do so.  

In addition, a compendium of anonymised cases, including a description of fraud and 
irregularity patterns and the modus operandi, will be compiled and made available on 
a  need-to-know  basis  to  staff  in  Commission  departments  (and  other  institutions 
where appropriate). 

5.3. 

Guide to prevention of fraud 

The  Commission  initiative  on  Sound  and  Efficient  Financial  Management9  (SEM 
2000) was launched in 1995. The first two phases were intended to improve financial 
management within the Commission whilst the main objective of the third phase was 
to  improve  the  management  of  that  part  of  the  Community  budget  (over  80%) 
managed by the Member States. 

A “Guide to testing for vulnerability to fraud”10 was adopted by the Commission as a 
follow  up  to  recommendation  No 7  of  SEM  200011.  This  guide,  published  by  the 

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Commission initiative ‘Sound and efficient management’ (SEM 2000): European Commission General 
Report 1995, point 976. 
Doc SG/C/3/ED D96 of 6 May 1996, not published in the OJ. 
Available only in French, internal decision issued from the former archiving systems. Communication 
de la Commission adoptée sur communication de Mme Gradin. Etanchéité de la législation à la fraude: 
mise en œuvre de la recommandation n°7 de SEM 2000, phase 2, SEC (1996) 1802/4 du 11 Octobre 
1996. 

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Secretariat-General  of  the  Commission,  is  still  available  to  assist  Commission  staff 
involved in financial management and protection of the EU’s financial interests. 

A new version of the guide, published by the Commission under the responsibility of 
OLAF, will be made broadly available to all stakeholders, including Member States. 
It will be based on the information produced by the fraud-proofing process and will 
be designed as a web-based tool. The guide could be divided and delivered by sector 
or policy family if appropriate. 

5.4. 

Information for control and audit bodies 

When  implementing  the  new  approach  to  fraud  proofing,  special  attention  will  be 
paid to structural or systemic weaknesses not already analysed by audit and control 
bodies  or  not  detected  via  other  systematic  controls.  Such  systemic  weaknesses  or 
potential  loopholes  in  management  systems  detected  within  EU  institutions  will  be 
communicated,  in  addition  to  management,  to  the  IAS,  the  IAC’s  concerned  or  the 
Internal Auditors of other EU institutions and bodies.  

5.5. 

The flexibility of the new approach 

In  order  to  become  a  permanent  additional  obstacle  to  fraudsters  and  to  counter 
systemic  irregularities,  the  new  fraud-proofing  policy  needs  to  be  designed  as  a 
flexible tool capable of adapting quickly to changing realities. 

OLAF  will  constantly  evaluate  the  need  to  refocus  fraud-proofing  activities  on 
specific areas and to adapt the process of analysis to maximise its effectiveness. This 
might — at some stage — require its activities to focus on specific sectors of the EU 
budget,  depending  on  the  risks  or  vulnerabilities  identified  and  resources  available. 
The fraud-proofing process will initially focus on the Direct Expenditure sector.  

6. 

CONCLUSION 

The  new  fraud-proofing  policy  established  in  this  communication  aims  to  improve 
prevention  of  fraud  and  corruption  on  the  basis  of  the  lessons  learnt  from  OLAF’s 
investigative and other operational activities. 

The results of this new process will be addressed to Commission departments and the 
other institutions concerned and will be shared with Member States involved in the 
management  and/or  control  of  EU  revenue  or  expenditure.  The  first  results  — 
expected  in  the  second  half  of  2008  —  will  be  ad  hoc  recommendations  and  the 
compilation of a compendium of common cases.  

After  a  trial  period  of  three  years,  an  evaluation  of  the  approach  set  out  in  this 
communication will be carried out. 

the 
The  Commission  will  report  on 
Commission’s annual report on the fight against fraud, published under Article 280 
of the Treaty. 

its  fraud-proofing  activities 

through 

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7. 

ANNEXES 

(1) 

Diagram of the process.  

(2) 

Staff  Working  Paper  on  Achievements  of  the  fraud-proofing  mechanism  set 
up under the Commission communication on fraud proofing of legislation and 
contract management adopted on 7 November 2001 

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