Activity Report of OLAF Supervisory Committee (June 2007 to May 2008)
Date: 2008-11-18
Institutions: European Anti-Fraud Office, European Commission
Subjects: European Anti-fraud Office, activity report

18.11.2008

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IV

(Notices)

NOTICES FROM EUROPEAN UNION INSTITUTIONS AND BODIES

COMMISSION

OLAF SUPERVISORY COMMITTEE

Activity Report of OLAF Supervisory Committee

June 2007 to May 2008

(2008/C 295/01)

Members of the OLAF Supervisory Committee

Luis LÓPEZ SANZ-ARANGUEZ

Chairman
Public Prosecutor at the Supreme Court, Spain

Kálmán GYÖRGYI

Chief Advisor to the Minister for Justice and Law Enforcement

Attorney General of the Republic of Hungary (retired), Hungary

Peter STRÖMBERG

Director of the Supervisory Board of Public Accountants, Sweden

Diemut R. THEATO

Former Member of the European Parliament, Former Chairman of the Committee of Budgetary
Control, Germany

Rosalind WRIGHT

Chairman of the Fraud Advisory Panel, United Kingdom

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CONTENTS

FOREWORD BY THE CHAIRMAN TO THE SUPERVISORY COMMITTEE'S ACTIVITY REPORT . . . . . . . . . . . . . . . . .

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

I.

SUPERVISORY COMMITTEE WORKING METHODS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

I — 1.

Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

I — 2.

The Secretariat

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

II.

OLAF’S INVESTIGATIVE FUNCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

II — 1.

Monitoring of OLAF’S investigative function: the reinforcement of OLAF’s independence . . . . . . . . . . .

II — 1.1.

Regular monitoring at the Supervisory Committee's initiative (Article 11(1) of Regulation (EC)
No 1073/1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

II — 1.2.

Regular monitoring based on information sent to the Supervisory Committee by the Director General
of OLAF (Article 11(7) of Regulation (EC) No 1073/1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

II — 1.2.1.

Investigations in progress for more than nine months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

II — 1.2.2. Recommendations to institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

II — 1.2.3. Cases requiring information to be forwarded to the national judicial authorities . . . . . . . . . . . . . . . . . . . .

II — 1.3.

‘Prima facie non-cases’: information received which clearly and unequivocally does not fall within the
competence of OLAF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

II — 1.4.

‘De minimis’ policy of OLAF: minor wrongdoings than can be dealt with satisfactorily by other services

II — 1.5. OLAF’s activities in the area of fraud prevention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

II — 2.

Management of OLAF’s investigative function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

II — 2.1. OLAF’s procedural investigation rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

II — 2.2. Management of investigations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

II — 2.3.

Administrative organisation and staff policy in relation to OLAF’s investigative function . . . . . . . . . . . .

III.

RELATIONS WITH OLAF, THE EU INSTITUTIONS, OLAF PARTNERS AND STAKEHOLDERS . . . . . .

III — 1.

Relations with OLAF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

III — 2.

Relations with the Community institutions and with OLAF’s partners and stakeholders . . . . . . . . . . . . .

CONCLUSIONS AND RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ANNEX 1 Calendar of Supervisory Committee Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ANNEX 2 List of Opinions adopted by the SC between 1 December 2006 and 31 May 2008 . . . . . . . . . . . . . . . . .

ANNEX 3 Opinion No 1/2008 ‘Prima facie non-cases’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ANNEX 4 Opinion No 2/2008 OLAF’s Annual Management Plan for 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ANNEX 5 Opinion No 3/2008 OLAF’s Preliminary Draft Budget for 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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FOREWORD BY THE CHAIRMAN TO THE SUPERVISORY COMMITTEE'S ACTIVITY REPORT

I am pleased to submit the second Activity Report of the present Supervisory Committee of OLAF, covering
the period between June 2007 and May 2008.

The Supervisory Committee is fully committed to assisting OLAF in its crucial fight against fraud, corruption
and irregular activities to the prejudice of the European Community's financial interests and to reinforcing
OLAF’s independence through the regular monitoring of its investigations. We are now in a defining moment
of our term of office to fulfil those tasks, having acquired both a good understanding and a broad knowledge
of OLAF and the scope of its work.

With this practical experience in hand, we have stepped up our monitoring of OLAF’s investigations through
the examination of a considerable number of cases with the aim of safeguarding OLAF’s independence in the
conduct of investigations and the quality of its work. At the time of writing the Supervisory Committee is
finalising a number of opinions: on cases of minor wrongdoings — ‘de minimis’ cases; detailed analysis of the
reasons for investigations lasting for more than nine months and assessment of a number of cases that remain
unresolved four years after they were opened. The regular monitoring of investigations is a fundamentally
important means of guaranteeing that independence in the opening and conduct of investigations and drafting
of case reports is fully respected. As an independent Committee, we are in an unrivalled position to carry out
this task and have and will continue to dedicate all our efforts and expertise to fulfil it.

We note that OLAF has been working on a new manual for operations; we will review this carefully and
provide constructive feedback. As we noted in our previous Activity Report, the Supervisory Committee found
that a large proportion of the issues surrounding OLAF’s investigations could be solved with clear procedural
rules that all OLAF officials are required to adhere to. This is particularly true as regards the excessive amount
of time taken up by some of these investigations. We would expect the new manual to set out clear procedural
rules for operations, including reasonable deadlines for each step in the investigative process.

The Committee is pleased to see those initiatives taken by OLAF with a view to making investigations more
efficient; however there is still a long way to go. We expect OLAF to review its management and human
resources policies and we would hope that resources in general are allocated in a more rational way to
reinforce the investigative function of OLAF.

Over the period concerned we have continued to stay in close contact with OLAF management, including the
Director General, Directors and Heads of Unit, as well as OLAF staff throughout the organisation. We have
experienced good collaboration with OLAF which we are persuaded will be maintained and strengthened in
the future. Furthermore we are confident that the close working relationship between the Committee and the
EU institutions will also continue.

Our ultimate aim as an independent Committee is to help OLAF increase its effectiveness and strengthen its
independence and we firmly intend to continue down this path.

I would like to thank in particular the Secretariat of the Supervisory Committee for their invaluable support.

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INTRODUCTION

The Supervisory Committee (SC) of the European Anti-Fraud
Office (OLAF) was established to reinforce and guarantee OLAF’s
independence by regular monitoring of OLAF’s investigative
function. The Committee delivers opinions to the Director
General of OLAF and is required to report to the institutions on
its activities on a yearly basis. This is the second activity report of
the current SC and refers to activities undertaken between 1 June
2007 and 31 May 2008.

In our first activity report, adopted in October 2007 (1), the SC
stressed the need for OLAF to implement strong and effective
leadership, clear
investigatory policy and management of
procedures,
internal control mechanisms to avoid potential
conflict of interest in the course of investigations and a robust
staff policy; all these matters having a direct impact on the
independent conduct of investigations and their effectiveness.
The SC also recommended changes to the way OLAF informs the
SC of those investigations that have been in progress for more
than nine months. The report was discussed with the Vice-
President of the Commission, Mr Siim Kallas, the Secretary
General of the Commission, Mrs Catherine Day; the Committee
on Budgetary Control of the European Parliament (Cocobu) and
the Council's working group on the Fight Against Fraud during
the Slovenian Presidency. The SC is gratified by the positive
feedback and support it received. Mr Franz-Hermann Brüner,
Director General of OLAF stated that he regarded the report as a
positive means of achieving common goals.

the SC
As we did during the previous reporting period,
continued the practice of inviting the Director General of OLAF
and a number of OLAF staff to its meetings in order to discuss
and be informed of any pertinent matters relevant to the SC
work and also to inform OLAF about the SC's activities.

I — 2. The Secretariat

The responsibilities of the Secretariat of the SC are outlined in
the SC Rules of Procedure (4), which stipulate that the Secretariat
plays a key role in facilitating and contributing to the
performance of all tasks undertaken by the SC and ensuring
that the SC is able to fulfil its legal mandate in full independence.

Having observed the difficulties of recruiting and appointing
Secretariat staff during its first two years in office (5), the SC
recommended (6) that eight appropriately qualified Secretariat
staff be earmarked by means of a footnote to the OLAF
establishment plan, in order to prevent the future work of the SC
grinding to a halt, as well as to ensure the continuity of the SC's
work and to strengthen the independence of the SC.

Mrs Rosalind Wright was Chairman of the SC until December
2007 when Mr Luis López Sanz-Aránguez was elected for a term
of one year.

II.

OLAF’S INVESTIGATIVE FUNCTION

I.

SUPERVISORY COMMITTEE WORKING METHODS

I — 1. Meetings

The SC maintained its schedule of monthly meetings and held 11
in-camera plenary meetings at which all members were
present (2). The SC meetings are not open to the public and all
its related documents are confidential, although the minutes of
its meetings are made available to OLAF and to the Secretariats
General of the European Parliament, of the Council and of the
Commission for the sake of transparency and in order to provide
them with regular information on the SC's activities. The SC's
opinions delivered to the Director General of OLAF were
adopted unanimously by the SC members and the appointment
of rapporteurs (3) was maintained to increase the efficiency of the
preparation and follow-up of specific items of interest to the SC.

(1) First Activity report covering the period December 2005 to May

2007 (OJ C 123, 20.5.2008, p. 1).

(2) See Annex 1.
(3) Article 8 of

the Rules of Procedure of

the OLAF Supervisory

II — 1. Monitoring of OLAF’S investigative function: the
reinforcement of OLAF’s independence

The independent opening and conduct of investigations and the
drafting of case reports following such investigations are the core
duties of OLAF. Since the beginning of its mandate the present
Supervisory Committee decided to make the fullest use of those
legal mechanisms provided to it by the legislator with regard to
the regular monitoring of OLAF’s investigatory function.

Since its last report, the SC has increased its monitoring activity
in the area of investigations lasting longer than nine months and,
for the first time, those investigations still open after a period of
more than four years, as well as those cases referred to the
national judicial authorities. The SC has also examined monthly
statistics on operational activities.

(4) The Rules were adopted by the SC in August 2006 and published in
the OLAF Supervisory

February 2007 (Rules of Procedure of
Committee (OJ L 33, 2.2.2007)).

(5) Two vacant secretariat posts were published internally by OLAF in
June 2006. One member of the Secretariat was appointed in January
2007 and one in July 2007.

Committee (OJ L 33, 2.2.2007, p. 1).

(6) See Annex 5.

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the Supervisory
II — 1.1. Regular monitoring
Committee's initiative (Article 11(1) of Regulation (EC)
No 1073/1999)

at

The excessive length of certain of OLAF’s investigations has been
a matter of concern to the SC. OLAF also considers the reduction
of the duration of older cases to be a priority (1).

Taking into consideration the leading role that OLAF plays in
certain areas of
investigation where it also enjoys clear
procedural competences, the SC decided to examine all cases
of OLAF Directorate A ‘Investigations and Operations
I’
remaining open after more than four years of investigation or
which were created in 2004. The rapporteurs have examined
information relating to 26 OLAF investigation files covering all
sectors of Directorate A as follows: 13 internal investigations:
European institutions, five internal/external
investigations: EU
bodies, six direct expenditure and external aid and two external
aid.

All OLAF’s investigations remaining open for more than four
years are being currently examined by the rapporteurs. General
and detailed conclusions will be reached in the coming months
and will be the subject of an Opinion addressed to the Director
General of OLAF.

In the process of the SC's monitoring of OLAF cases, both paper
and electronic files from OLAF’s Case Management System
database (CMS) were examined. The SC experienced an overall
lack of
rigorous and systematic organisation in both the
indexation and the filing of OLAF documents. The SC considers
that such careful attention to detail is indispensable in order to
avoid any possible confusion and potential loss of continuity in
cases. Furthermore, the SC considers that in order to save time,
file notes with a summary of the facts of a case in one of the
Commission's working languages be prepared by the investigator
able to read the documents in their original language.

This analysis aimed to verify that potential undue delays were not
related to any reason that would have compromised the
independent conduct of investigations or could jeopardise their
results.

II — 1.2. Regular monitoring based on information sent to
the Supervisory Committee by the Director General of
OLAF (Article 11(7) of Regulation (EC) No 1073/1999)

When examining the cases, the SC gave due consideration to the
following elements: compliance with the rules as set out in the
OLAF Manual; categorisation of cases as criminal, disciplinary or
financial offences; undue delays; periods of inactivity and time
barring (prescription) limits; conflicts of interest in the course of
for human rights and fundamental
investigations;
freedoms; potential
the independent conduct of
investigations. In addition, an overall assessment of the quality
of
the files as well as the consistency between the Case
Management System (CMS) and the paper copy was carried out.

respect

risks

for

While each case has individual features, it was apparent that there
was a common thread of undue delays and unexplained periods
of inactivity during the investigation phase. Some of those cases
classified as
‘criminal
assistance’ cases. These cases and others correctly categorised
as internal investigations were kept open although no investi-
gatory action is currently being taken.

investigations’ were in fact

‘internal

Except for the evaluation and assessment periods there are no
clear deadlines set out in the OLAF Manual for the duration of
investigations. This lacuna creates legal uncertainty and a
potential danger of a breach of the time-barring (prescription)
limits and of other factors prejudicial to the interests of justice.

The SC is concerned by the lack of effective case scrutiny
mechanisms to assist OLAF in avoiding such risks. The SC
recognises and welcomes the appointment of two board advisors
for the OLAF investigations and operational Directorates, but
their terms of reference are not clearly defined and,
in the
absence of clear procedural rules, the SC fears that factors
harmful to the successful outcome of an investigation are still
present.

(1) OLAF’s seventh activity report 2006.

II — 1.2.1. Investigations in progress for more than nine months

The SC has continued the examination of those reports drawn up
by OLAF investigators where investigations have been in
progress for more than nine months. The SC examined all 141
reports of investigations of this type during the period January to
December 2007 (78 % of investigations opened by OLAF at that
date had been in progress for more than nine months) on a
month by month and sector by sector basis, paying particular
attention to the reasons given for the cases not being completed
within a nine month period. The SC noted that the reason cited
by OLAF in half of these reports was: ‘significant resources were
allocated but even so the volume of the investigative work means
that more time is needed’.

In its annual activity report 2005-2007, the SC had recom-
mended radical changes to the information contained in those
OLAF reports designed to give detailed reasons for egregious
delays in investigations and to draw attention to potential time
barring (prescription) periods (2).

More specifically, the SC recommended to the Director General
of OLAF that ‘the format of the summary of the “nine months
reports” should change so as to incorporate supplementary
the
elements which would allow an efficient evaluation of
progress of investigations. These elements should include: the
legal description of the irregularity, the date or period on which
the acts under investigation were executed, the duration of the
“assessment stage” prior to taking the decision to open the case,
the potential sanctions or legal consequences of the acts under
investigation and time-barring periods for
the acts under
investigation’.

(2) Recommendation III of the SC Annual Activity Report December

2005 — May 2007 and SC Opinion No 1/2007 (Annex 4).

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The Director General of OLAF formally followed this recom-
mendation of
the SC. However, whereas investigations and
operational units of Directorate B ‘Investigations and Operations
II’ adapted their reports to the information requested by the SC,
the investigations and operational units of Directorate A
‘Investigations and Operations I’ did not follow the recommen-
dation (1). As a result, the SC encountered the same issues as
those experienced in the previous reporting period. The use of
‘tactical hold in investigation’ was frequently given as a reason for
a pending investigation. The SC had previously recommended
the omission of this as a reason to keep a case pending since it
did not provide a clear picture of the reasons for delays. In
addition, it was noted that the expected time for completion of
the investigation was not mentioned in one-third of the cases.

The SC drew the attention of the Director General of OLAF to
the disparity in the approach of both Directorates. Only in
January 2008 did the Directorate A units adapt their summaries
to the requests of
the SC. These reports are also under
consideration by the SC (54 from January to May 2008) and,
together with the abovementioned 141 reports, are the subject
matter of an opinion to be addressed to the Director General of
OLAF.

II — 1.2.2. Recommendations to institutions

The Director General of OLAF is obliged to inform the SC of
cases where an institution, body or agency concerned has failed
to act on the recommendations of OLAF (2). In the reporting
period only two such cases have been reported to the SC, which
the SC has analysed and discussed. On the basis of such a small
number of reported cases, the SC is not able to come to any
general conclusions or make any recommendations. However,
these cases raise concerns that OLAF did not carry out an
effective follow-up and failed to take account of time barring
periods despite which it undertook a great deal of unnecessary
administrative work. The fact that there have only been two cases
during the reporting period gives the SC concern that there
appears to be no systematic reporting in place.

The SC recommends that OLAF set up a systematic reporting
system for those cases where an institution, body or an agency
has failed to act on OLAF’s recommendations in accordance with
the legal obligation.

II — 1.2.3. Cases requiring information to be forwarded to the
national judicial authorities

The aim of the SC is to assess the quality and usefulness of
OLAF’s investigation reports for the national judicial authorities
and that conclusions of
investigations are solely based on
elements which have evidential value in the judicial proceedings
of the Member State in which their use proves necessary (3).

(1) Directorate B (four units): Agriculture; Customs I; Customs II;
Structural Measures. Directorate A (four units): Internal Investiga-
tions: European institutions;
Investigations: EU
bodies; Direct Expenditure and External Aid; External Aid.

Internal/External

(2) Article 11(7) of Regulation (EC) No 1073/1999.
(3) Recital 10 and Article 9(2) of Regulation (EC) No 1073/1999.

The Director General of OLAF regularly forwards to the SC
copies of the files sent to Member States'
judicial authorities.
During the reporting period the SC examined 43 cases of this
type. These cases have been presented to the SC meetings by
those magistrates of OLAF’s Judicial and Legal Advice Unit who
forwarded the case files. Based on a preliminary analysis, open
discussions on substantive and procedural aspects of investiga-
tions take place between the SC and the representatives of this
Unit.

The SC has paid particular attention to the classification of the
offences as well as to their limitation period (prescription). The
SC also checks that the description of the facts is clear and
comprehensible to the addressees. Lastly, the members endea-
vour to ensure that the reports will stand up as admissible
evidence in the judicial procedure of
the Member State in
question. In the event of an offence comprising constituent
elements committed in several Member States, the SC also seeks
to determine what objective reasons prompted OLAF to choose
the particular Member State to which it has submitted the case.

The SC has observed that in some cases the final reports have
been sent to the national judicial authorities when cases are time
barred; in others, the lack of relevance of the case has led these
authorities not to open the case. The SC also noted that this
could be avoided by involvement in the investigation at an earlier
stage of the magistrate of the Judicial and Legal Advice Unit. In
all cases where their advice appears essential, the degree and
timing of involvement of OLAF magistrates is not systematic.

It is worth pointing out that the judicial authorities of the
Member State which receive OLAF’s reports are not obliged to
instigate legal proceedings (4). It is up to these authorities to take
a decision in line with the rules of
law applicable in their
territory and, where appropriate, with their criminal policy
priorities.

With this in mind, and in order to improve the clarity of the
reports forwarded, it would be advisable to ensure that all of
these reports are always based on the same pre-established model
to ensure that nothing is omitted and that all the relevant
elements are included taking into consideration the legal
requirements of the Member State and the national evaluation
rules.

The SC also receives information regularly from OLAF on the
cases in which the national authorities, including the prosecution
services, did not instigate proceedings following the receipt of
files from OLAF. This concerned two cases forwarded in 2007
and one in 2008, where the judicial authorities to whom the
cases were referred decided not to take any further action.

(4) See also Judgment of 4 October 2006, Case T-193/04, HMT v

Commission, point 69.

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information received
II — 1.3 ‘Prima facie non-cases’:
which clearly and unequivocally does not fall within the
competence of OLAF

The SC examined a representative sample of 212 ‘prima facie
non-cases’ (24 % of all cases between 2003 and 2007) where
information received by OLAF did not
fall within OLAF’s
competence and, therefore, did not require a full assessment or a
formal investigation to be opened (1). The focus of the analysis
was to verify the correct application by OLAF of the rules set out
in the manual, and to examine what procedures are currently in
place to deal with these types of cases.

The SC concluded that OLAF applies
the existing rules
appropriately and that the procedures allow OLAF to close
these types of cases quickly without excessive need of resources.
The SC did not detect any case in the sample where a different
procedure or full investigation of the information would have
been more appropriate. However, the SC notes that there was a
disparity between current practice, whereby investigators assess
incoming information and the manual, which indicates that
processing incoming information is the responsibility of the
Head of Unit. The SC recommends this to be taken into
consideration by OLAF during revision of the OLAF Manual —
Operational Procedures.

II — 1.4. ‘De minimis’ policy of OLAF: minor wrongdoings
than can be dealt with satisfactorily by other services

The SC is aware that the main factor in deciding whether or not
to open a case is not always financial
impact. OLAF is also
obliged to consider other factors such as the political importance
of the information and the Communities' reputation, as well as
respecting the Commission's zero tolerance policy for fraud and
corruption. This should, however, not mean that OLAF has to
process all types of initial information and investigate all cases
regardless of the magnitude of their financial impact.

The SC has identified some very minor cases (e.g. false expense
claims by officials involving small amounts of money) where
they could have been immediately referred to the Investigation
and Disciplinary Office of the Commission (IDOC), who are
competent to investigate these types of internal cases, as well as
cases of professional misconduct. The SC's experience also shows
that OLAF would benefit from strengthened cooperation with
IDOC.
important that OLAF implement the
Memorandum of Understanding with IDOC as soon as possible,
to clarify the rules on what should be investigated by OLAF and
what should be referred to IDOC, as well as practical issues such
as access to files.

It is, therefore,

investigation policy and priorities. The SC considers that OLAF
should aim at allocating resources wherever possible to
investigate more serious cases pursuant
to an investigation
strategy, to be defined by OLAF, who would redistribute the
workload and human resources away from those cases where the
financial impact is low.

II — 1.5. OLAF’s activities in the area of fraud prevention

During the period covered by this report OLAF gave regular
presentations to the SC concerning new fraud and corruption
prevention initiatives. While the SC,
in principle, supports
OLAF’s efforts in the area of fraud and corruption prevention, it
believes that work in this area should be closely linked with
and operational work. The SC is
OLAF’s
particularly interested to learn how, based on concrete results
from investigations, OLAF could use this experience and their
resulting expertise to deal with strategic challenges in the area of
fraud and corruption as stated in Regulation (EC) 1073/1999 (2).

investigations

Given their finite resources for both investigative and preventive
activities, the SC recommends that OLAF give urgent considera-
tion to clear prioritisation of fraud and corruption prevention in
order that resources are not diverted from investigation work.
The SC stresses the necessity to substantially increase the flow of
information, collaboration and coordination between OLAF’s
directorates and units in charge of fraud prevention and those
directorates and units in charge of investigations in order that the
experience acquired through investigations can be of real use for
OLAF’s initiatives in this area. Such an alignment is essential for
the useful contribution in this field which is anticipated from
OLAF to the Commission services.

II — 2. Management of OLAF’s investigative function

II — 2.1. OLAF’s procedural investigation rules

In April 2007 OLAF forwarded to the SC the Draft OLAF
Manual — Operational Procedures (short version). The SC
considers that OLAF needs a clear and practical guide for OLAF
investigators formulated so as to serve as a useful working tool
for carrying out investigations: explaining the procedures, rules
and deadlines applicable to different phases of an investigation.
This version of the Draft OLAF Manual did not meet the SC's
expectations.

The SC believes that it would be beneficial for OLAF to develop
an in-house ‘de minimis’ policy in accordance with OLAF’s

At the time of writing, OLAF was in the process of finalising the
new Draft OLAF Manual — Operational Procedures and the SC
will give its feedback bearing in mind the points mentioned
above.

(1) Part 3.3.3.1 of OLAF Manual of 25 February 2005, p. 7.

(2) Article 1(2) of Regulation (EC) No 1073/1999.

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II — 2.2. Management of investigations

its mandate,

Since the beginning of
the SC has given
consideration to the direct impact that OLAF’s management,
leadership and organisation have on the implementation of its
investigative function (1). The SC is confident that improvements
in these areas will increase the efficiency and effectiveness of
OLAF’s investigative function: namely control of delays and the
quality and efficiency of investigations. In the SC's view, the
current legal framework (2) provides the decision-making powers
on matters related to the organisation and management of
OLAF’s activities in general for the Director General of OLAF, as
the Head of Service.

the management of

improvements are already
The SC notes that a number of
investigations. The SC
underway for
the appointment of Directors of Directorate B
welcomes
‘Investigations and Operations II’ and of Directorate C ‘Opera-
tional and Policy Support’ and also Board advisors
for
Directorates A and B.

At the end of the reporting period, the SC met the Directors of
Directorates A and B (3)
to discuss the latest developments
regarding their respective areas of work and their ideas for the
future. The SC would like to build a closer and more open
relationship with OLAF management. The SC fully supports
OLAF’s Directors in their efforts to improve the control and
supervision of investigations and is willing to help and advise
OLAF as and when appropriate.

The SC recommends that OLAF’s management better define a
clear investigative policy and the strategic planning of investiga-
tions which, in the SC's view, would also improve transparency
and facilitate the management of the high volume of investiga-
tions and corresponding available resources in the most efficient
way.

The SC also encourages OLAF’s management to adopt a clearer
management focus and vision of OLAF’s ultimate function. The
SC believes that there is a danger that the lack of transparency
may lead to delays in the processing of case files and, in turn,
hinder follow-up by Member States of OLAF’s recommendations.
OLAF presentations of cases forwarded to national
judicial
authorities indicate that some case files were not processed by
the national judicial authorities because the prescription period
had expired before the case was forwarded to them. Moreover,
the SC analysis of the nine months reports (4) indicates that the

(1) See conclusions of the First Activity Report of 17 October 2007 (OJ
C 123, 20.5.2008, p. 1) and the SC Opinion No 1/2007 ‘OLAF’s
reports of investigations that have been in progress for more than
nine months’, contained in the Report.

(2) Article 12 of Regulation (EC) No 1073/1999 and Article 5 of the

Commission Decision No 1999/352/EC, ECSC, Euratom.

(3) Directorate A (four units): Internal Investigations: European institu-
tions; Internal/External Investigations: EU bodies; Direct Expenditure
and External Aid; External Aid. Directorate B (four units):
Agriculture; Customs I; Customs II; Structural Measures.

(4) SC Opinion No 1/2007 ‘OLAF’s reports of investigations that have

been in progress for more than nine months’.

many delays (due to low priority, lack of resources and tactical
hold)
in processing case files could be avoided by better
management and planning.

Furthermore, the SC emphasises the importance of mechanisms
for adequate quality control and the avoidance of delays as well
as a fully functioning feedback system and evaluation of
investigations. The existence of a sound control system and
benchmarks would facilitate the follow-up by OLAF manage-
ment of performance as well as identification of problem areas.
On the other hand, the system should also allow corrective
action to take place on the basis of lessons learnt, following
recommendations made. Key tools to improve the control and
feedback systems are internal transparency and communication.

The SC issued an opinion on OLAF’s Annual Management Plan
2008 (AMP) (5) in which the SC made a number of suggestions
regarding management objectives and performance indicators (6).

II — 2.3. Administrative organisation and staff policy in
relation to OLAF’s investigative function

The SC takes the view that the Director General of OLAF should
be responsible for putting in place an effective staff policy within
the framework of
the Communities Staff Regulations as
stipulated in the Commission Decision of 1999 (7). Moreover,
the Director General of OLAF should exploit the full flexibility he
enjoys as appointing authority to ensure smooth staff recruit-
ment, internal transfers and removals and to ensure that the
posts and appropriations necessary to allow OLAF to function
efficiently be made available.

The SC has examined OLAF’s preliminary draft budget for 2009
and issued an opinion (8), in which it particularly emphasised the
importance of a close alignment of the staff policy with the needs
of the investigations units.

In the SC's view this can be achieved by further development of
human resources strategy enabling an efficient staff allocation
based on real needs and agreed priorities, and by allocating new
resources to core investigation work. There is currently an
imbalance between allocated resources of operational and non-
operational work and OLAF’s priority should be to better use
already acquired in-house resources rather than to increase total
staff numbers.

(5) See Annex 4.
(6) See Annex 4.
(7) Article 6 of Commission Decision 1999/352/EC, ECSC, Euratom of

28 April 1999 (OJ L 136, 31.5.1999, p. 20).

(8) See Annex 5.

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The SC stresses the importance of setting up a specialised and
continuous training programme for investigators to improve
their knowledge and skills particularly in relation to the financial
implementation of Community rules.

to OLAF management and staff. OLAF is aware of an urgent need
to improve planning and strategic management of its investiga-
tions and to set up and implement operational priorities, rules
and procedures for investigations.

The independence of OLAF investigators is vital. To this end, the
question of OLAF temporary staff is of critical importance from
the point of view of stability, continuity and independence since
a high proportion of investigatory staff is currently employed on
temporary contracts. The SC welcomes positive developments in
2007 and 2008 with regard to the extensions of temporary
contracts for an unlimited period and the publication of open
competitions. Furthermore, the SC encourages OLAF to under-
take promotion of its temporary staff in accordance with the
Staff Regulations and the Decision of the Director General of
2005 (1)
in order to improve their mobility, whilst carefully
planning its recruitment policy following the completion of both
the ongoing and planned competitions.

The SC has stressed the importance of investigations criteria and
priorities to enable an optimal use of existing resources. The SC
supports the views of OLAF senior management that an increase
in staff numbers is not currently a pressing need for OLAF,
rather, that there should be a reallocation and proper training of
existing in-house resources to correct
these
measures and initiatives require, however, a stronger commit-
ment and leadership on behalf of OLAF management.

the focus. All

the Chairman of

During the reporting period,
the SC and
rapporteurs were invited by OLAF to participate in three OLAF
conferences: the Fraud Prosecutors' Conference in Brussels, the
Eurojust OLAF conference on corruption in Brussels and the
joint ICSTE/ANU/OLAF conference to combat corruption held in
Portugal (3)

III. RELATIONS WITH OLAF, THE EU INSTITUTIONS, OLAF
PARTNERS AND STAKEHOLDERS

III — 1. Relations with OLAF

III — 2. Relations with the Community institutions and with
OLAF’s partners and stakeholders

Since the beginning of its term of office the SC has issued eight
opinions (2): three on OLAF’s preliminary draft budgets, one on
nine months reports, one on ‘prima facie non-cases’, one on the
proposed reform of OLAF (including one complementary
opinion) and two on issues related to management of OLAF’s
investigative function. The SC is satisfied that, in most cases,
OLAF has agreed to take the SC's views into consideration and is
planning to implement them fully.

The SC encourages OLAF to respond with more detailed and
regular information on how it intends to implement the SC's
recommendations in order that the SC can assess the impact of
its work. Overall, the SC is confident that its recommendations
will help OLAF to improve the effectiveness of the activities of its
office and, in particular, certain aspects which are central to the
operational independence of the office and sound management
of the investigative function.

During the period covered by the report, the SC met regularly
with the Director General of OLAF, with all the individual
Directors and regularly with magistrates of the Judicial and Legal
Advice Unit, as well as with personnel from other Units who
discussed their work with the SC. The SC concluded from these
discussions that the ambiguities mentioned earlier in the report
as to the nature of OLAF’s investigations and particularly the
management and human resources matters, are also of concern

(1) Article 1 of the Decision of the Director General of OLAF on a new
policy for the engagement and use of OLAF’s temporary agents
stipulates that ‘Temporary staff may be regraded once to the next
higher grade in the category/function group by decision of the
Director General after consultation of a joint committee’.

The SC maintained close contacts with the Community
institutions and with OLAF’s partners and stakeholders and it
is committed to a regular exchange of views with bodies with a
common interest in combating fraud, corruption and illegal
activities affecting the Community financial interest.

In this spirit, during the reporting period, the SC met with the
following: Vice-President of the Commission, Mr Siim Kallas; the
Secretary General of the Commission, Mrs Catherine Day; the
Committee on Budgetary Control of the European Parliament
(Cocobu) and its Chairman, Mr Herbert Bösch; the Cocobu
Coordinators and the Cocobu rapporteur for OLAF and the SC,
Mrs Ingeborg Grässle; the Director for Justice and Home Affairs
at the European Council Secretariat, Mr Gilles de Kerchove; the
Working Group for the Fight Against Fraud of the European
Council during the Slovenian Presidency; the Assistant Super-
visor of the European Data Protection Supervisor, Mr Joaquín
Bayo Delgado and with the European Ombudsman, Mr Nikiforos
Diamandouros.

From these discussions the SC concluded that a better under-
standing and closer working relationship had been established
with OLAF across the Commission; that there was a common
and overall concern with regard to the repercussions of delays in
the handling and closing of internal investigations; that OLAF’s
operational capacity would be very much appreciated in the
framework of Justice and Home Affairs and reflection should be
made on the subject matter of OLAF within the framework of
the Lisbon Treaty and the European Public Prosecutor Office. At

(2) See Annex 2, which includes a list of opinions adopted by the SC

(3)

between 1 December 2006 and 31 May 2008.

Instituto Superior de Ciências do Trabalho e da Empresa/Australian
National University/OLAF.

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the invitation of and in cooperation with the State General
Prosecutor of Spain, the SC participated in the international
seminar on this topic with the aim of uniting those bodies
working in the field of justice in order to discuss the future
framework in the fight against offences affecting the financial
interests of the Union and to reflecting upon the role that OLAF
could play in this new structure.

The SC also met the State General Prosecutor of Spain Mr
Candido Conde-Pumpido and the Federal Prosecutor of Belgium
Mr Johan Delmulle with the aim of assessing the quality and the
usefulness of OLAF’s investigations reports transmitted to the
national judicial authorities and to encourage a good flow of
information between OLAF and the Member States together with
a proactive implementation by the national authorities of the
provisions relating to the duty to inform OLAF (1). The SC's role
is also to assist OLAF to improve the level of collaboration and
cooperation between OLAF and Member States,
this being
essential for the successful outcome of OLAF’s investigations. It
was emphasised during the discussions that currently there is
good cooperation and exchange of
information between
prosecution and judicial authorities and OLAF. The role of the
magistrates of OLAF’s Legal and Judicial Advice Unit remains
essential for regular contacts and work with the national judicial
authorities.

A cooperation arrangement between the State General Prose-
following the
cutor Office of Spain and OLAF was signed,
international seminar mentioned above, in January 2008. The SC
encourages OLAF to further reinforce its general relationships
with national authorities, the tangible results of OLAF’s work
also depending on the contribution made by the Member States
both during the investigation and in the follow-up stages.

In its discussions with the Assistant Supervisor of the European
Data Protection Supervisor (EDPS), Mr Joaquín Bayo Delgado, the
SC stressed that permanent access to OLAF data was inherent to
its work, to allow the SC to fulfil its legal mandate of monitoring
whilst ensuring that personal data protection and confidentiality
provisions are fully applied. In July 2007, the EDPS issued an
opinion (2), in which he concluded that ‘There is no reason to
believe that there is a breach of the provisions of Regulation (EC)
No 45/2001 of the European Parliament and of the Council of
18 December 2000 on the protection of individuals with regard
to the processing of personal data by the Community institutions
and bodies and on the free movement of such data (3) providing
that
the opinion are fully taken into
account’. The SC agreed with the recommendations made by the
EDPS and is fully committed to implementing them.

the considerations of

CONCLUSIONS AND RECOMMENDATIONS

I.

The SC's core role is to carry out the regular monitoring of
to secure independence in the
OLAF’s

investigations

opening and conduct of investigations and in the drafting
of case reports. This mechanism is essential to reinforce the
independence of OLAF’s investigations from the outset and
the SC remains committed to this goal.

II.

The SC is concerned with regard to the excessive length of
certain investigations and has examined all those remaining
open after more than four years pertaining to OLAF
Directorate A ‘Investigations and Operations I’. The SC has
studied 26 investigations, without
interfering in their
conduct,
and has observed unexplained periods of
inactivity and incorrect categorisation of cases. The SC
urges OLAF to implement rigorous control mechanisms to
avoid potential conflict of
in the course or
investigations.

interest

III. The SC has analysed all those reports (195 in all) of
investigations which remained open after nine months.
Scrutiny is being made of the reasons for delays and the
expected time for completion. The SC will follow up this
item with OLAF.

IV.

V.

The SC recommends that magistrates of OLAF’s Judicial and
Legal Advice Unit be fully involved at a much earlier stage
of investigations in order to take full account of the time
barring (prescription) periods and to ensure that those
investigations forwarded to the national judicial authorities
are likely to be admitted in evidence in each Member State.

The SC is satisfied with the sample of 212 ‘prima facie non-
cases’ that it examined and concludes that the current
procedure for dealing with information which does not fall
within OLAF’s competence, has allowed OLAF to close
these cases quickly and efficiently. However,
the SC
recommends that
the relevant reference in the OLAF
Manual is consistent with the current practice of OLAF.

information and all cases regardless of

VI. The SC believes that OLAF is not obliged to process all
types of
their
financial impact and strongly recommends it develop a ‘de
minimis’ policy for cases of minor wrongdoings with very
low financial impact and critically assess when these cases
could be referred to IDOC. Furthermore, the SC urges
OLAF to implement the Memorandum of Understanding
with IDOC to clarify the division of work concerning these
cases.

(1) Article 7 of Regulation (EC) No 1073/1999.
(2) Opinion by the European Data Protection Supervisor on a
notification for prior checking from the Data Protection Officer of
the European Anti-Fraud Office (OLAF) on Regular monitoring of
the implementation of the investigative function. Case 2007-0073 of
19 July 2007.

(3) OJ L 8, 12.1.2001, p. 1.

VII. The SC received and reviewed the two cases reported by
OLAF in which an institution has failed to follow OLAF’s
recommendations. The SC strongly recommends that OLAF
regularly monitor and systematically report to the SC all
such cases thereby improving the effectiveness of OLAF’s
follow-up.

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VIII. The SC recommends OLAF review the content and format
of the monthly statistical reports since the data is currently
neither interpreted nor linked to any measurement of
quality and cannot be verified by the SC.

IX. The SC has considered the impact of OLAF’s management
on OLAF’s
investigative function and fully supports
measures taken to improve the management of investiga-
tions and particularly their planning, control and super-
vision. The SC strongly recommends OLAF put more
emphasis on management, strategic planning and control,
and feedback systems for operational work. Above all, the
SC recommends OLAF to better define their investigation
policy and to adopt a clearer management focus and vision
as to its purpose and overall success factors. Strong
commitment on the part of OLAF leadership and managers
is a prerequisite for a harmonious and productive working
climate.

X.

The SC recommends that OLAF develop a human resources
strategy and, as a priority, allocate more and the highest
quality of human resources to operational work, which is
the core activity of OLAF. It is not clear whether there is a
sound legal basis for OLAF to deal with some of the non-
core activities such as follow-up and management of the
Community expenditure programmes. The SC recommends
that OLAF management take steps to correct the current
imbalance between allocated resources of operational and
non-operational work and provide continuous training for
its investigators.

XI. The SC recommends that OLAF work with the Commission
administration in order to optimise the implementation of
its own staff policy. The SC welcomes positive develop-
ments with regard to the situation of OLAF’s temporary
staff and recommends OLAF undertake promotions of
temporary staff in accordance with the Staff Regulations.

XII. The SC recommends that OLAF’s efforts in the area of fraud
and corruption prevention be focused in such a way that
expertise and knowledge gained from investigations can be
of practical use for all Commission services. The SC
recommends that OLAF improve internal coordination and
ensure regular flow of information between its Directorates
in this area.

XIII. The SC considers that all the recommendations above must
be adequately reflected in the new manual of operations,
this being an essential working tool for the conduct of
investigations. The SC firmly believes that the adoption of a
manual with clear operational procedures and deadlines
will provide a consistent framework for OLAF’s investiga-
tions and would reinforce its independent conduct. The SC
is committed to constructively contribute to its drafting.

XIV. In order to avoid difficulties to acquire the necessary
resources in the SC Secretariat, the SC recommends that SC
Secretariat posts be earmarked in the OLAF establishment
plan. Appointment of the SC Secretariat staff should be
made with the express agreement of the SC thus ensuring
the full independence of the SC in the performance of its
duties.

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ANNEX 1

CALENDAR OF SUPERVISORY COMMITTEE MEETINGS

2007

Month

Meeting date

Tuesday, 19 to Wednesday, 20 June

Monday, 9 to Tuesday, 10 July

Tuesday, 18 to Wednesday, 19 September

Tuesday, 16 to Wednesday, 17 October

Monday, 26 to Tuesday, 27 November

Tuesday, 11 to Wednesday, 12 December

2008

Month

Meeting date

Wednesday, 23 January

Tuesday, 26 to Wednesday, 27 February

Tuesday, 1 to Wednesday, 2 April
Monday, 28 to Tuesday, 29 April

Tuesday, 27 to Wednesday, 28 May

JUNE

JULY

SEPTEMBER

OCTOBER

NOVEMBER

DECEMBER

JANUARY

FEBRUARY

APRIL

MAY

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LIST OF OPINIONS ADOPTED BY THE SC BETWEEN 1 DECEMBER 2006 AND 31 MAY 2008

ANNEX 2

Opinion No 1/2006 OLAF’s Preliminary Draft Budget for 2007

2006

Opinion No 2/2006 concerning the reform of the Regulation (EC) No 1073/1999 concerning investigations conducted by
the European Anti-Fraud Office (OLAF)

Supplementary opinion concerning the reform of the regulation (EC) No 1073/1999 concerning investigations conducted
by the European Anti-Fraud Office (OLAF)

Opinion No 3/2006 of the Supervisory Committee Performance indicators for OLAF

Opinion No 1/2007 OLAF’s Reports of Investigations that have been in progress for more than nine months

Opinion No 2/2007 OLAF’s Preliminary Draft Budget for 2008

2007

2008

Opinion No 1/2008 ‘Prima facie non-cases’

Opinion No 2/2008 OLAF’s Annual Management Plan for 2008

Opinion No 3/2008 OLAF’s Preliminary Draft Budget for 2009

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ANNEX 3

OPINION No 1/2008

‘Prima facie non-cases’

Brussels, 28 March 2008

1.

2.

3.

At its meeting of 18/19 September 2007, the OLAF Supervisory Committee decided to analyse how OLAF treats so-
called prima facie non-cases.

In order to focus greater attention and resources on the more important cases referred to it, in 2004, OLAF
introduced a simplified procedure for ‘prima facie non-cases’, which are defined as ‘… information is received which
clearly and unequivocally does not fall within the competence of OLAF’ (1). This would apply, for example to a
complaint from a citizen of a third country that he was being wrongfully taxed by his local taxation authority. The
procedure, set out in the OLAF Manual, as above, avoids the need for OLAF to open a formal investigation and
conduct an assessment, only to close the case a short time later.

Between 2003 and 2007, OLAF handled 894 prima facie non-cases. The Supervisory Committee selected a random
but representative sample of 212 prima facie non-cases, taking care to ensure that the sample included cases involving
all operational directorates and investigation departments of OLAF. The Supervisory Committee noted that very few
of the prima facie non-cases related to customs matters, cigarette importation and VAT. After clarification of a number
of data protection issues, OLAF gave the Supervisory Committee unrestricted access to all the cases sampled.

4.

The findings of the Supervisory Committee’s analysis can be summarised as follows —

4.1.

In general, the Supervisory Committee found that OLAF applies the rules on prima facie non-cases correctly. In
particular, the procedure is appropriately applied in the following cases:

— information from anonymous sources,

— information supplied by trouble-makers,

— information relating to disputes between private individuals,

— information regarding national programmes totally unrelated to European Union finances,

— information regarding the implementation of a Community policy or programme; such cases frequently

arise in connection with the common agricultural policy or structural policy.

In the last-mentioned cases, OLAF is obliged to identify the project concerned and investigate the case
with the assistance of the competent national authority/ies and/or DG AGRI or DG REGIO. If the
suspicions are not substantiated, the cases are also closed on the grounds that they are prima facie non-
cases.

OLAF could equally file these cases as ‘non-cases’. However, the PFNC procedure has the advantage of
requiring neither evaluation nor consultation of the OLAF Board thus enabling a simplified procedure
leading to the same conclusion, i.e. closure of the case,

— where OLAF has declined an invitation from the Commission’s disciplinary authority (IDOC) to take up a

case of suspected misconduct.

The Supervisory Committee found that the prima facie non-case procedure allowed OLAF to close all these cases quickly
without imposing an excessive drain on administrative and investigative resources.

(1) OLAF, Operational Manual, S.76: ‘Prima Facie Non-Cases: Where information is received which clearly and unequivocally does not fall
within the competence of OLAF, then the responsible Head of Unit may propose not to refer the information for assessment. The Head
of Unit must complete a Prima Facie Non-Case form (Annex 2, Form 19), which must be countersigned by Director B and returned to the
Archives for registration, together with the initial information. A CMS record will be opened, but the case will appear on the CMS as
closed.’

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4.2. The prima facie non-case procedure is sometimes applied in situations not covered by the definition set out in

the OLAF Manual. Two examples:

— an anonymous caller contacts OLAF on the freephone service alleging irregularities concerning the use of
European funds and leaving a phone number. OLAF makes a number of attempts to obtain further
information from the caller, but this proves impossible; either the number does not exist or the caller is
not available. In such circumstances the ‘sufficiently serious suspicions’ necessary, under the ruling of the
European Court of Justice relating to the launch of an investigation, cannot be established. OLAF therefore
closes the case, in the view of the Supervisory Committee, quite rightly. However, it is not certain that the
case ‘clearly and unequivocally’ falls outside the competence of OLAF,

— in some cases, OLAF conducts an initial investigation which establishes in the light of the results of the

investigation that it is a prima facie non-case.

The Supervisory Committee takes the view that OLAF is to be praised for not being overly hasty in closing
investigations as prima facie non-cases and that the background facts are initially established prior to the
case being closed,

— the Supervisory Committee also found that in none of the cases examined did OLAF use the prima facie

non-case procedure to ‘bury’ cases which should have been fully investigated.

Conclusion

The representative random sample that the Supervisory Committee has examined has demonstrated that the prima facie
non-case procedure enables OLAF to close prima facie non-cases quickly and without excessive bureaucracy. OLAF takes
due care when applying this procedure. The Supervisory Committee found no case in its random sample where another
procedure, in particular, a full investigation, would have been appropriate.

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ANNEX 4

OPINION No 2/2008

OLAF's Annual Management Plan for 2008

Brussels, 26 February 2008

The OLAF Annual Management Plan (AMP) 2008 was sent to the Secretariat of the Supervisory Committee (SC) in January
and it was discussed by the SC at its meetings in January and February 2008 having particular regard to the parts concerning
the Office's investigative function. The SC therefore welcomes the adoption of clear objectives and measurable performance
indicators (result indicators and targets) and hopes they will contribute to achieving increased efficiency, transparency and
accountability in all OLAF's operations.

The SC notes that in comparison with 2007, OLAF's overall strategic and operational target has been changed from ‘zero
tolerance’ to ‘to minimise fraud’. Since this is a considerable strategic change the ‘minimum fraud rate’ should be further
specified in order to establish milestones and assess whether the activities undertaken contribute to achieving the general
objective. On the other hand, given the fact that OLAF's resources are very limited, the SC considers that the general
management objective should be to target more serious (i.e. higher financial impact) fraud cases which would enhance the
Office's reputation whilst at the same time ensuring the most efficient use of Community funds. There is no specific
reference to this in the AMP.

Having regard to the result indicators and targets for the four specific objectives, the SC is doubtful as to whether the
number of cases closed with recommendations to be followed with disciplinary proceedings is a realistic target, given that it
is difficult to predict the outcome of investigations at an early stage. Moreover, it is difficult to see how this target would
apply to the increasing number of assistance, monitoring and coordination cases, where OLAF does not have a lead role.

The SC questions the value of the indicator ‘Increase the number of judicial and disciplinary proceedings based on OLAF's
recommendations’, as the achievement of this target is outside OLAF's powers. Moreover, the mid-term review of AMP 2006
indicates that OLAF does not currently receive consistent and reliable information from member states' (MS) national
judicial authorities in relation to the judicial follow-up of its recommendations. The SC suggests that a more useful target
might be to increase the information flow between OLAF and relevant MS authorities. Furthermore, in this context, the SC
would like to see the legal basis, as well as the tasks and responsibilities of the various areas of follow-up, urgently clarified
and this should be reflected in the AMP. In the meeting with OLAF representatives in June 2007 the SC pointed out, inter
alia, that OLAF does not have a legal basis to undertake financial follow-up activities on behalf of the Commission.

With regard to financial impact, a coherent policy or guidelines on how the financial impact of different types of cases is to
be estimated should be determined before it is selected as a target in the AMP. The SC believes that different methods of
calculation to estimate financial impact are currently being used by the two investigation Directorates and between the
different units. Once such guidelines are established they should be linked to the strategy for implementing the ‘de minimis’
policy and address the question of cost-efficiency within given resources.

The AMP states that OLAF's investigations must be performed within a reasonable duration, which is, on average,
24 months (Result indicator 2.1). The SC notes that this target has, according to past OLAF annual activity reports, not been
achieved for the past three years. Between 2005 and 2007, the average duration of investigations has been between 24 and
28 months. However, this target remains unchanged in the current AMP. The SC questions whether the target is indeed
feasible and realistic or whether more effective management measures should be taken to achieve the target. Secondly, the
case clearance rate (result indicator 2.2) should be close to one, which has been achieved in the past if it is calculated on the
basis of new cases opened during a calendar year. However, the SC would like to know what measures OLAF management
intends to undertake to tackle the existing caseload (around 400 cases in December 2007), since achieving this target will
not contribute to a reduction of the caseload.

When it comes to the other supporting activities (Objectives 3 and 4), the SC is of the view that some of the objectives and
targets are expressed in terms which are too general and therefore difficult to measure. This would be the case for example
with the ‘Enhanced relations and cooperation with Europol and Eurojust’, ‘Network of contacts in place with all relevant
partners’, ‘OLAF regarded as valued partner whose assistance and support is sought’ and ‘Efficient use of OLAF operational
experience and efficient use of OLAF's investigations’ results to deter fraud and irregularities'.

Finally, the SC would like reference to be made in the AMP to the implementation of its own recommendations.

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ANNEX 5

OPINION No 3/2008

OLAF’s Preliminary Draft Budget for 2009

Brussels, 2 April 2008

At its meetings of 1 and 2 April, the OLAF Supervisory Committee (SC) discussed OLAF’s Preliminary Draft Budget for
2009 and adopted the following opinion.

I.

Allocation and management of OLAF’s human resources

With regard to the question of temporary staff, the SC welcomes a number of positive developments in 2007 and early
2008, particularly the granting of an extension for an unlimited period for temporary staff and the publication of open
competitions in the area of anti-fraud prevention. These developments could not have taken place without OLAF’s active
and persistent involvement with the aim of improving the situation of its temporary staff.

The SC also notes that the number of vacant posts has been declining since early 2007. This is a positive trend and will
enhance OLAF’s capacity to carry out its activities effectively. In this context, the SC would like special attention to be given
to a large number of management posts which have been occupied by ‘acting’ personnel for a considerable period. Of eight
units in the two investigations Directorates, only one currently has a permanent head of unit. In the SC’s view, this issue
should be urgently resolved by the management to ensure continuity of work and provide some safety for managers.

Since 1999 the number of OLAF staff has considerably increased, and currently stands at close to 400. The SC is concerned
that sufficient measures on human resources management have still not been taken to date. This weakness was pointed out
in the SC’s Opinion No 2/2007 on OLAF’s 2008 budget and in a number of discussions with OLAF representatives in 2007.
The SC can only reiterate the urgency of putting in place a human resources strategy, which aims to ensure that human
resources are fully suited to the needs of the organisation and its priorities. The strategy could address, inter alia, the working
relations with DG ADMIN, recruitment, training, in-house mobility, and career development of both permanent and
temporary staff.

In the SC’s view, a well-defined human resources strategy would enable OLAF to improve the efficiency and effectiveness of
investigations, to maximise the use of existing resources in the investigation area and to better manage the workload in the
investigation teams. As part of the human resources strategy the SC particularly wishes to emphasise the importance of
finding a practical solution to improving the cooperation between OLAF and DG ADMIN in human resources management,
development of temporary staff (promotions) and in putting in place adequate, continuous training for investigators.

For the 2009 Budget, OLAF is requesting an additional two AD posts, which would be allocated to operational Directorates
A and B as stated by OLAF’s Director General on 2 April 2008 in the meeting of the SC. The SC fully supports
strengthening OLAF’s investigative function, enabling OLAF to shorten delays and increase the efficiency of investigations in
priority areas, thus better responding to the needs of its stakeholders.

On the basis of the examination carried out by the Supervisory Committee of the 295 OLAF reports of investigations that
have been in progress for more than nine months covering the years 2006 and 2007, about 55 % of investigations have not
been completed due to either ‘lack of resources’ or ‘the volume of the investigative work meant that more time was needed’.
This analysis indicates that the investigation teams need to be reinforced in order to cope with their workload.

Furthermore, regarding the allocation of resources between different OLAF activities, the SC conducted a review which
indicates that in the last few years more resources have been allocated to Office support activities rather than to core
investigation work in Directorates A and B. The SC is concerned about this development since it weakens the Office’s
capacity to carry out investigations in an efficient, effective and timely manner and because it will draw OLAF away from its
core mission. Based on numerous presentations given by OLAF to the SC in 2006 and 2007, it is not clear whether many
tasks currently carried out by the Office, such as the follow-up activities (particularly the financial follow-up) and
management of Community programmes, are part of OLAF’s core mission and whether OLAF is indeed best placed to deal
with them.

In the case of management of programmes Hercule II and Pericles (EUR 20 million) the SC is concerned with regard to the
potential conflict of interest that could arise were there to be misuse of funds and an investigation opened. In the SC’s view,
OLAF should not manage any Community expenditure programmes.

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In summary, the SC believes that OLAF’s resources have been randomly distributed and there is an imbalance between
allocated resources of operational and non-operational work. From now on OLAF’s management should give a clear priority
only to investigations which, in practice, require the allocation of further existing as well as future resources to core
investigation work. The non-operational activities currently carried out by the Office should not be a priority in resource
allocation and consideration should be given as to whether some of the activities are OLAF’s responsibility in the first place.

Recommendations:

The SC supports OLAF’s requests to allocate two AD posts for investigation Directorates A and B.

OLAF to draft a human resources strategy based on needs assessment to address short- and medium-term
human resources matters.

OLAF to publish the vacant posts of Heads of Units of Directorates A and B as soon as possible.

The SC encourages OLAF management to allocate resources to areas of high priority investigation work
and particularly to areas where workload is high. Furthermore, the needs for additional resources for non-
operational activities should be critically evaluated.

II.

The Secretariat of the SC

The SC has undertaken a needs assessment concerning its Secretariat staff. As a result the SC requests OLAF to make
provision in the 2009 Budget for a complement of eight Secretariat staff using the ‘footnote’ or other appropriate method to
earmark these posts specifically for the Secretariat.

In the past, the post of the Head of SC Secretariat was graded at Director level. The SC requests that consideration should be
given regarding the appointment of the Head of Secretariat post to Director, with the express agreement of the SC in order
to ensure that the person who is chosen best fulfils the needs and requirements of the SC contributing to the performance of
its duties and to its independence. As the SC stressed in its activity report, the independence of the Committee is a key factor
in safeguarding OLAF's own independence.

Recommendations:

OLAF to earmark eight staff members for the Secretariat.

The post of the Head of the Supervisory Committee Secretariat to be at Director level. Appointment
should be made with the express agreement of the Supervisory Committee, thus ensuring the full
independence of the SC in the performance of its duties.

III.

Conclusion

The SC supports OLAF's budget proposal for 2009 with the proviso that the above recommendations be taken into
consideration.