REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Protection of the European Union's financial interests - Fight against fraud Annual Report 2011
Date: 2012-07-19
Institutions: European Commission
Subjects: Community budget, EU statistics, European Anti-fraud Office, activity report, common agricultural policy, economic and social cohesion, financial control, fraud against the EU, fund (EU)

EUROPEAN COMMISSION 

COM(2012) 408 final 

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 

Protection of the European Union's financial interests - Fight against fraud 
Annual Report 2011 

{SWD(2012) 227 final} 
{SWD(2012) 228 final} 
{SWD(2012) 229 final} 
{SWD(2012) 230 final} 

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REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND 
THE COUNCIL 

Protection of the European Union's financial interests - Fight against fraud 
Annual Report 2011 

EXECUTIVE SUMMARY 

The  Commission  presents,  in  cooperation  with  the  Member  States,  this  Annual  Report  on 
Protection  of  the  European  Union’s  Financial  Interests  in  2011  under  Article  325  of  the 
Treaty on the Functioning of the European Union. 

The  purpose  of  this  report  is  to  assess  the  extent  to  which  EU  funds  or  revenue  of  the  EU 
budget  are  at  risk  of  misuse  because  of  fraudulent  or  non-fraudulent  irregularities  and  to 
explain what is being done to address the issue.  

Recent measures to protect the financial interests of the EU 

During  2011,  the  Commission  has  taken  a  number  of  measures  to  improve  the  legal  and 
administrative framework for protecting the EU’s financial interests: 

– 

– 

– 

– 

– 

– 

An amended proposal for a reform of the European Anti-Fraud Office (OLAF); 

The Commission Anti-Fraud Strategy (CAFS), which also included the Action Plan 
to fight smuggling along the EU’s eastern border; 

The  Communication  on  the  protection  of  the  financial  interests  of  the  European 
Union by criminal law and administrative investigations; 

The Communication on fighting corruption in the EU; 

Proposals for modernisation of the public procurement rules; and 

The Communication on the future of VAT. 

Decrease in fraudulent and other irregularities affecting the EU budget 

In  2011,  in  all  sectors  combined,  1 230  irregularities  were  reported  as  fraudulent,  down  by 
about  35%  in  comparison  with  2010.  The  estimated  financial  impact  of  such  irregularities 
reported  as  fraudulent  also  decreased,  by  about  37 %  in  comparison  with  2010  to 
EUR 404 million.  Moreover,  the  number  of  other  irregularities  and  the  estimated  financial 
impact also decreased by about 17% and 6% respectively.  

The  decrease  in  reported  fraud  cases  and  the  related  amounts  was  expected,  following  the 
sharp increase in 2010, which was caused by the ‘cyclical’ effect of the closure of the 2000-
2006 programming period for cohesion policy and by the acceleration in reporting following 
the  introduction  of  the  Irregularity  Management  System  (IMS).  The  impact  of  both  these 
factors has worn off. 

While the overall picture is reassuring and demonstrates, amongst other things, the effects of 
the  procedures  the  Commission  has  put  in  place  to  deal  with  irregularities  and  a  general 

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improvement  in  the  management  and  control  systems  by  Member  States,  there  are  still 
significant differences in the approaches adopted by Member States to report fraudulent and 
non-fraudulent irregularities. Certain Member States continue to report very low fraud rates. 
This  raises  questions  about  the  adequacy  of  their  national  reporting  systems.  The  Member 
States  concerned  should  therefore  report  on  how  their  control  systems  are  being  adapted  to 
target areas where there is a high risk of fraud and irregularities. 

It  is  also  clear  from  the  analysis  of  the  threat that the need to combat criminal fraud is still 
very real, particularly in a recession, and remains high on the Commission's agenda. 

Improvement of anti-fraud systems in the area of cohesion policy 

The analysis of this year’s special topic — the measures taken and irregularities reported in 
the high-risk area of cohesion policy — shows improvements in the financial control and risk 
management  system.  These  include  legal  provisions  and  guidelines,  national  or  regional 
strategies, use of risk indicators, administrative procedures and cooperation between national 
authorities. 

Conversely,  further  progress  is  needed  on  monitoring  the  results  of  the  administrative  and 
criminal anti-fraud investigations by the Member States, including on the recovery of amounts 
from the final beneficiary in the area of cohesion policy. 

Furthermore, better fraud statistics are necessary to enable the Commission and the Member 
States to focus their efforts in higher-risk areas. 

Improvement in recovery procedures 

The recovery process, in particular for pre-accession funds and direct expenditure, has been 
improved.  The  Commission  invites  Member  States  and  pre-accession  countries  with  low 
recovery rates to speed up their procedures, to make use of the available legal instruments and 
guarantees  when  irregularities  are  detected  and  to  seize  assets  in  cases  where  debts  are  not 
paid. 

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1. 

INTRODUCTION 

Under  Article  325(5)  of  the  Treaty  on  the  Functioning  of  the  European  Union,  the 
Commission,  in  cooperation  with  Member  States,  each  year  submits  to  the  European 
Parliament and the Council a report on the measures taken to implement that Article, i.e. to 
counter fraud and any other illegal activities affecting the financial interests of the Union. 

The Treaty states that the Union and the Member States share responsibility for protecting the 
Union’s financial interests and fighting fraud. National authorities manage four fifths of EU 
expenditure  and  collect  traditional  own  resources1.  In  these  two  areas,  the  Commission 
exercises  overall  oversight,  sets  standards  and  verifies  compliance.  Close  cooperation 
between the Commission and the Member States is essential in order to protect the Union’s 
financial interests effectively. One of the prime objectives of this report is, therefore, to assess 
the extent to which this cooperation has worked, as far as can be seen from the available data, 
and how it could be further improved. 

This  report  describes  the  measures  taken  at  Union  level  to  counter  fraud.  It  also  contains  a 
summary and evaluation of the action taken by Member States in one specific area, based on 
the  replies  to  a  questionnaire  focusing,  this  year,  on  the  controls  in  the  area  of  cohesion 
policy.  The  report  then  presents  the  latest  information  on  fraudulent  and  non-fraudulent 
irregularities reported by the Member States and the situation on recovery of amounts. 

The report is accompanied by four Commission Staff Working Papers2. 

2. 

REPORTED FRAUDULENT AND OTHER IRREGULARITIES 

EU legislation requires the Member States to report to the Commission, on a quarterly basis, 
any irregularities that they have detected in the areas under shared management, pre-accession 
assistance and traditional own resources. 

The  Member  States  must  inform  the  Commission  whether  reported  irregularities  raise 
suspicions  of  fraud  (if  they  give  rise  to  the  initiation  of  administrative  and/or  judicial 
proceedings at national level in order to establish the presence of intentional behaviour, such 
as fraud3) and must update the information as the relevant proceedings to impose penalties are 
completed. 

In this report, irregularities are divided into two broad categories: 

‘Irregularities  reported  as  fraudulent’  are  irregularities  suspected  of  being  fraudulent  or 
established to be so, including irregularities which Member States did not report as fraudulent, 

1
2 

3 

Mainly customs and agricultural duties, but also anti-dumping duties and sugar levies. 
(i)  Implementation  of  Article  325  by  the  Member  States  in  2011;  (ii) Statistical  evaluation  of 
irregularities  reported  for  2011  own  resources,  natural  resources,  cohesion  policy  and  pre-accession 
assistance;  (iii)  Recommendations  to  follow  up  the  Commission  report  on  protection  of  the  EU’s 
financial interests — fight against fraud, 2010; (iv) Methodology regarding the statistical evaluation of 
reported irregularities for 2011. 
For  example,  under  Commission  Regulation  (EC)  No 1848/2006  of  14  December  2006  concerning 
irregularities and the recovery of sums wrongly paid in connection with the financing of the common 
agricultural policy, OJ L 355, 15.12.2006, pp. 56–62. 

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but where it was possible to deduce elements of potential fraudulent behaviour from analysis 
of the information4. 

‘Irregularities not reported as fraudulent' are any other type of irregularities reported, but 
not ascertained to be fraudulent. 

In general, the quality (i.e. completeness and timeliness) of the reporting of irregularities has 
improved. Some deficiencies and inconsistencies still remain, but these are a limited number 
of  cases  and,  therefore,  have  no  significant  effect  on  the  accuracy  of  this  analysis.  The 
distinction between irregularities reported as fraudulent and those not reported as fraudulent 
might  not  be  fully  comparable  between  different  Member  States,  as  it  could  depend  on 
national practices and rules. 

In response to requests of and discussions with the European Parliament, the Commission is 
henceforth placing greater emphasis on its analysis of irregularities reported as fraudulent. 

2.1. 

Analysis of irregularities reported as fraudulent by the Member States in 2011  

In  the  period  2007-2011  the  number  of  irregularities  reported  as  fraudulent  in  all  sectors 
combined remained fairly stable until 2010 (see Chart 1). In 2011, 1 230 irregularities were 
reported as fraudulent (suspected and established fraud), down by about 35% in comparison 
with 2010, as shown in Table 1. The estimated financial impact of such irregularities reported 
as fraudulent also decreased, by about 37% in comparison with 2010 to EUR 404 million. 

Chart 1: ALL SECTORS: Irregularities reported as fraudulent and related amounts — 
2007-2011 

4 

For instance, if a false or falsified document is used or when criminal investigations or proceedings are 
under  way;  such  irregularities  therefore  include  those  detected  by  the  Commission,  including  OLAF. 
The concept of suspected fraud is not used in the reporting on traditional own resources (TOR). 

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2 000

1 800

1 600

1 400

1 200

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1 000

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2008

2009

YEAR

2010

2011

No of irregularities reported as fraudulent

Related amounts

The  decrease  in  irregularities  reported  as  fraudulent  and  the  related  amounts  was  partly 
expected, following the increases in 2009 and 2010. The main reasons for this decrease are: 
the  end  of  the  temporary  acceleration  in  reporting  following  the  introduction  of  the 
Irregularity Management System (IMS) in 2008; a general improvement in the management 
and  control  systems;  specifically  for  Cohesion  Policy,  the  ‘cyclical’  nature  of  these 
programmes, whereby reported irregularities increased towards the closure of the 2000-2006 
programming  period5  –  i.e.  reporting  years  2009  and  2010;  and  a  consequent  contraction 
subsequently, as the 2007-2013 programming cycle is implemented in a progressive way6. 

Table 1: Irregularities reported as fraudulent — 2011 

Number of 
irregularities 
reported as 
fraudulent 

2010 

2011 

Area 

Estimated financial impact of irregularities 
reported as fraudulent 

2010 

2011 

(€ 
million) 

% of 
allocations
approx. 
0.12 % 

(€ 
million) 

77 

% of 
allocations
approx. 
0.14 % 

Agriculture 

414 

139  

69  

5 
6 

Because of increased control activity in its latest years of implementation. 
At present, the overall implementation rate is below 40% of the available resources. This implies that 
the projects to be controlled are now less than in the latest years of the previous programming period 
and therefore the resulting irregularities are in general less and the dissuasive effect of the controls is 
higher. 

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Fisheries 

0 

2 

0 

0 % 

Cohesion policy 

464 

276 

364 

Pre-accession funds 

101 

Direct expenditure 

21 

56 

34 

41 

3.6 

Total expenditure 

1000 

507 

478 

Total revenue7 
(traditional own 
resources) 

883 

723 

165 

approx. 
0.74 % 
approx. 
2.53 % 
approx. 
0.02 % 
approx. 
0.34 % 
(approx. 
0.79 % of 
the gross 
amount of 
TOR 
collected 
for 2010) 

0.03 

204 

12 

1.5 

295 

109 

approx. 
0.005 % 
approx. 
0.40 % 
approx. 
0.67 % 
approx. 
0.002 % 
approx. 
0.21 % 
(approx. 
0.49 % of 
the gross 
amount of 
TOR 
collected 
for 2011) 

When it comes to expenditure, cohesion policy remains the sector with the highest number of 
irregularities reported as fraudulent (54 % of the total) and the biggest financial impact (69 % 
of the total). 

2.1.1.  Revenue (traditional own resources) 

In  2011,  in  the  area  of  traditional  own  resources  (TOR),  both  the  number  of  cases  of 
irregularities reported in OWNRES as fraudulent and the amounts involved were lower than 
in 2010. 

7 

For reasons of comparability the figures of 2010 are based on the data used for the report that year. The 
data includes established and estimated amounts involved in irregularities reported as fraudulent. 

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Chart 2: TOR: Irregularities reported as fraudulent and related amounts — 2007-2011 

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100

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60

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2007

2008

2009

YEAR

2010

2011

No of irregularities reported as fraudulent

Related amounts

The  fraud  figures  reported  in  relation  to  TOR  vary  significantly  from  one  Member  State  to 
another.  As  mentioned  above,  this  is  the  result  of  different  interpretations  of  the  provisions 
and practices between the Member States. 

From  the  financial  perspective,  the  variations  from  one  year  to  another  are  attributable  to 
reports of individual large fraudulent cases, which make a considerable impact on the annual 
figures,  especially  in  Member  States  where  lower  amounts  of  TOR  are  collected.  Several 
factors  may  also  influence  the  figures  on  fraudulent  and  non-fraudulent  cases  detected,  e.g. 
the  type  of  traffic  and  trade,  the  level  of  compliance  by  the  economic  operators  and  the 
location of the Member State. The way in which the Member State’s customs control strategy 
is set up to target risky imports and to detect TOR-related fraud and irregularities also affects 
those figures. 

The  Commission  monitors  closely  the  action  taken  by  Member  States  in  response  to  the 
observations made during Commission inspections8. 

8 

A report on Member States’ customs control strategy summing up the results of the inspections carried 
out  in  2009  and  2010  in  all  Member  States  was  presented  to  the  Advisory  Committee  on  Own 
Resources on 7 July 2011. 

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2.1.2.  Expenditure — Shared management and pre-accession assistance 

2.1.2.1.  Natural resources (agriculture and European fisheries fund) 

In  agriculture,  the  number  of  irregularities  reported  as  fraudulent  and  the  related  amounts, 
relative  to  the  total  amounts  spent,  differ  substantially  both  between  and  within  Member 
States. 

Member States  reported  139 irregularities as fraudulent out of a total of 2 395 in 2011.  The 
number reported as fraudulent decreased in comparison with the 2010 reporting year whereas 
the financial impact increased from EUR 69 million in 2010 to EUR 77 million in 2011 (see 
Chart 2). This increase can be explained by two big cases reported, one worth EUR 39 million 
and the other EUR 26 million. 

Chart  3:  Agriculture:  Irregularities  reported  as  fraudulent  and  related  amounts  — 
2007-2011 

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450

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0

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40

30

20

10

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2007

2008

2009

YEAR

2010

2011

No of irregularities reported as fraudulent

Related amounts

In 2011, Bulgaria reported the highest number of fraudulent irregularities in this area, with 37 
cases  followed  by  Romania  with  25.  Certain  big-spending  Member  States  such  as  France, 
Germany,  Spain  and  the  United  Kingdom  continue  to  report  a  very  low  number  of 
irregularities  as  fraudulent.  This  raises  the  question  whether  the  low  number  declared  as 
fraudulent is due to non-compliance with reporting principles, including their interpretation of 
the terms ‘suspected fraud’ and ‘established fraud’, or to the ability of the control systems in 
place in these Member States to detect fraud. 

In  the  report  on  2010,  the  Commission  called  on  France,  Germany,  Spain  and  the  United 
Kingdom to explain the low number of irregularities reported as fraudulent and to report on 

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how  their  control  systems  are  being  adapted  to  target  higher-risk  areas.  To  date,  the 
Commission has received no explanation. 

Finland, the Netherlands and Poland were invited to report more consistently, in particular in 
relation to personal data on individuals who have committed irregularities (fraudulent or non-
fraudulent).  The  Netherlands  and  Poland  improved  their  compliance  rate  to  about  83 %  and 
Finland to almost 75 %. This is a big step forward but there is still room for improvement. The 
overall  compliance  rate  for  the  EU-27  is  around  93 %,  which  is  an  increase  in  comparison 
with 2010 (90 %). 

The  Commission  assists  Member  States,  performs  constant  quality  checks  in  the  IMS 
reporting  system  and  provides  the  Member  States  with  feedback  on  the  quality  of  the 
reporting and on the data missing. 

In  the  case  of  the  European  Fisheries  Fund,  two  irregularities  were  reported  as  fraudulent, 
worth a combined total of about EUR 30 000. 

2.1.2.2.  Cohesion policy 

In 2011, the number of irregularities reported as fraudulent in the area of cohesion policy and 
the  related  amounts  both  decreased  significantly  in  comparison  with  the  previous  year,  by 
46% and 63% respectively (see Chart 3). 

As with other irregularities, this significant decrease was expected as a result of neutralisation 
of the causes for the sharp increase observed in 20109. 

9 

I.e.  the  closure  of  the  2000-2006  programming  period  and  the  acceleration  of  the  reporting  of 
irregularities following the introduction of the IMS. 

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Chart 4: Cohesion policy: Irregularities reported as fraudulent and related amounts — 
2007-2011 

600

500

400

N

300

200

100

0

400

350

300

250

200

150

100

50

0

R
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n
o

i
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l
i

m

2007

2008

2009

YEAR

2010

2011

No of irregularities reported as fraudulent

Related amounts

Trends  highlighted  in  previous  years  were  confirmed:  Poland,  Germany  and  Italy  reported 
most of the cases (149 out of 276) and Germany remains the most successful Member State at 
completing criminal proceedings to establish fraud and impose penalties. 

Six  Member  States  reported  no  irregularity  as  fraudulent  in  the  area  of  cohesion  policy  in 
2011: Belgium, Cyprus, Denmark, France, Malta and the Netherlands. It is still not clear why 
this was so in larger Member States, like France. 

Most frequently, irregularities reported as fraudulent take the form of use of false or falsified 
documentation (supporting documents, declarations or certificates), mainly linked to inclusion 
of ineligible expenditure (resulting in inflation of the cost of the project) or to the ineligibility 
of the beneficiary to receive the financial support. Three cases concerned corruption with an 
estimated financial impact of EUR 750 000. 

In agriculture and cohesion policy areas, Member States are invited to explain the low 
number  of  “suspected  fraud”  cases  reported  and  to  report  on  the  way  in  which  their 
control systems target high-risk areas to improve fraud prevention and detection. 

2.1.2.3.  Pre-accession assistance 

In  the  area  of  pre-accession  assistance,  in  2011  the  number  of  irregularities  reported  as 
fraudulent  and  the  related  amounts  continued  to  decrease  significantly,  thus  confirming  the 
trend highlighted in 2010. 

This  is  the  obvious  consequence  of  the  phasing-out  of  the  EU-10  and  EU-2  countries  from 
action financed under the pre-accession assistance programmes for the period 2000-2006. 

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Chart  5:  Pre-accession  assistance:  Irregularities  reported  as  fraudulent  and  related 
amounts — 2007-2011 

300

250

200

N

150

100

50

0

50

45

40

35

30

25

20

15

10

5

0

R
U
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n
o

i
l
l
i

m

2007

2008

2009

YEAR

2010

2011

No of irregularities reported as fraudulent

Related amounts

As  in  previous  years,  the  majority  of  the  cases  relating  to  pre-accession  assistance 
(programming period 2000-2006) concerned SAPARD (the Special Accession Programme for 
Agriculture and Rural Development). Poland reported the highest number of cases, followed 
by Romania. 

In the case of the Instrument for Pre-Accession Assistance (programming period 2007-2013), 
the  nine  irregularities  reported  as  fraudulent  were  divided  between  the  five  different 
components10.  Irregularities  in  all  five  were  reported  by  Turkey,  while  a  single  case 
concerning  the  cross-border  component  was  detected  in  Italy,  part  of  the  Adriatic  Cross-
Border Cooperation Programme. In this area, only Turkey is using IMS for the reporting of 
irregularities, while Croatia still does not, despite the training and support provided. 

The  Commission  invites  Croatia  to  complete  the  implementation  of  the  IMS  and  to 
improve  the  reporting  quality;  the  Commission  invites  FYROM  to  implement  the 
system.  

2.2. 

Analysis of irregularities not reported as fraudulent by Member States in 2011 

In 2011, the number of irregularities not reported as fraudulent recorded an overall decrease 
(see Chart 6), which was particularly sharp in the domains of the Cohesion Policy and Pre-
Accession.  

10 

Cross-border cooperation, Human resources, Rural development, Regional development and Technical 
assistance. 

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Chart  6:  Irregularities  not  reported  as  fraudulent  and  related  amounts  all  sectors  — 
2007-2011 

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12 000

10 000

8 000

6 000

4 000

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1 000

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2007

2008

2009

YEAR

2010

2011

No of irregularities not reported as fraudulent

Related amounts

On the revenue side, the financial impact of the irregularities not reported as fraudulent shows 
a slight increase over 2010 (see Table 2). 

Table 2: Irregularities not reported as fraudulent — 2011 

Number of 
irregularities 
not reported as 
fraudulent 

2010 

2011 

Estimated financial impact of irregularities not 
reported as fraudulent 

2010 

2011 

(€ 
million) 

% of 
allocations 

(€ 
million) 

% of 
allocations 

Area 

Agriculture 

1427 

2256 

62 

approx. 
0.11 % 

Fisheries 

1 

46 

0.01 

0 % 

Cohesion policy  6598 

3604 

1186 

Pre-accession 
funds 

Direct 
expenditure 

323 

207 

42 

1000 

888 

39.5 

approx. 
2.41 % 

approx. 
2.59 % 

approx. 
0.27 % 

101 

1.6 

1015 

48 

49.9 

approx. 
0.18 % 
approx. 
0.24 % 
approx. 
2.00 % 

approx. 
2.63 % 

approx. 
0.78 % 

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Total 
expenditure 

9349 

7001 

1325.51 

Total 
revenue11 
(traditional 
own resources) 

3861 

3973 

253 

1215.5 

278 

approx. 
0.94 % 

(approx. 
1.21 % of 
the gross 
amount of 
TOR 
collected for 
2010) 

approx. 
0.86 % 

(approx. 
1.24 % of 
the gross 
amount of 
TOR 
collected for 
2011) 

In 2011, in the area of traditional own resources, the irregularities not reported as fraudulent 
were 3 973, showing an increase from 2010, both in number and in the amounts involved. 

Member States’ customs control strategies should intensify targeting high-risk imports, 
thus further improving the detection rate of cases of irregularities and fraud in TOR. 

In the area of agriculture, irregularities were 2 256 in 2011, showing an increase from 2010, 
both in number and in the amounts involved. The increase in the number of cases reflects the 
increase  in  expenditure  and  especially  the  extra  efforts  made  by  Member  States  and  the 
Commission to improve the process for reporting irregularities12. 

The financial impact of irregularities not reported as fraudulent in agriculture also increased, 
from EUR 62 million in 2010 to EUR 101 million in 2011. Special focus is being placed on 
the  financial  years  2004-2006,  which  are  considered  ‘finalised’  because  control  and  audit 
plans  have  been  completed,  recovery  procedures  have  been  started  and  irregularities  have 
been reported. 

In the areas of cohesion policy and pre-accession assistance, the same conclusions highlighted 
in relation to irregularities reported as fraudulent are also valid to explain the decrease in the 
number of irregularities not reported as fraudulent (cyclical nature of programmes, end of the 
reporting  acceleration  following  the  introduction  of  the  IMS  and  the  improvements  in  the 
management and control systems for the cohesion policy and the phasing-out of a number of 
beneficiary countriesfor the pre-accession policy). 

Irregularities not reported as fraudulent in cohesion policy still account for the largest share of 
those affecting the various areas of expenditure under the EU budget, though the prevalence 
of this sector is decreasing in relation to the previous year (approximately 50 % of all cases 
reported in 2011, in comparison with 70% in 2010). 

The  majority  of  these  irregularities  are  infringements  of  rules  applicable  to  public 
procurement and eligibility of expenditure. This shows that management and control systems 
can still improve in this area. 

Member  States  are  encouraged  to  pursue  their  efforts  to  improve  the  efficiency  and 
effectiveness of their management and control systems in the area of cohesion policy. 

11 
12 

See footnote 7. 
Training  sessions  and  documents  such  as  ‘Information  Bulletins’  and  ‘Questions  and  Answers’  to 
inform and instruct users of IMS module 1848. 

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The overall quality of reporting has been constantly improving thanks to the introduction and 
successful implementation of the IMS in every Member State. France was the last country to 
start using the system (in the last quarter of 2011). Therefore, further improvements could still 
be  achieved,  particularly  when  the  link  between  the  national  IT  system  PRESAGE  and  the 
IMS is completed in 2012. 

In the area of cohesion policy, the Commission invites France to finalise implementation 
of the IMS system by the end of 2012. 

2.3. 

Analysis  of  fraudulent  and  other  irregularities  related  to  expenditure  directly 
managed by the Commission in 2011 

This  section  concerns  recovery  orders13  issued  by  Commission  departments  in  relation  to 
expenditure under ‘centralised direct management’14. 

According to the accrual-based accounting system of the Commission (ABAC), in the 2011 
financial  year  a  total  of  3 389  recovery  orders  were  issued  for  a  total  amount  of  EUR  225 
million. Among these recovery orders, 922 irregularities were flagged as non-fraudulent and 
24 as fraudulent; analysis shows that a further 10 recoveries can be considered as fraudulent. 
The  financial  impact  of  these  34  fraudulent  irregularities  amounts  to  EUR  1.5  million. 
Compared  to  the  overall  budget  committed  under  the  centralised  direct  management  in  the 
same financial year, this fraud and irregularity rate is very low. 

3. 

RECOVERY 

The recovery data presented in this section is based, for the sectors of the expenditure budget, 
on those published in the annual accounts of the European Union15. Therefore, they differ in 
scope and content from those presented in previous years16.  

13 

14 

15 

16 

According  to  Article  72  of  the  Financial  Regulation  (Council  Regulation  (EC,  Euratom)  No 
1605/2002),  the  authorisation  of  recovery  is  the  act  whereby  the  authorising  officer  by  delegation  or 
sub-delegation responsible instructs the accounting officer, by issuing a recovery order, to recover an 
amount receivable which he or she has established. 
Centralised  direct  management  includes  any  EU  expenditure  from  funds  managed  by  the  EU 
institutions (e.g. administrative expenditure of the institutions and programmes like Leonardo, Erasmus, 
the 7th Framework Programme for research and technological development, etc.). Under Article 53 of 
the Financial Regulation, this part of the budget can be implemented on a centralised basis, directly by 
the  Commission  departments,  or  by  delegating  implementing  tasks  to  third  countries  (decentralised 
management) or to international organisations (joint management). 
Specifically  those  showed  in  explanatory  note  No  6  on  financial  corrections  and  recoveries.  In 
particular, the recovery rate is calculated as the ratio between financial corrections or recovery orders 
decided in the given financial year and those effectively implemented. 
Data presented in previous years was based mostly on the irregularity reports by Member States. These 
data are presented in the Commission Staff Working Document “Statistical Evaluation of Irregularities 
reported in 2011”. To allow comparability with the previous year's results for each of the policy areas 
concerned, the recovery rate for 2010 has been recalculated in Table 3 for each sector.  

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Table 3: Recovery rates per sector — 2010–2011 

BUDGET SECTOR 

CONTEXT 

RECOVERY 
RATE 

2010 

2011 

TOR 

The  overall  recovery  rate  for  all  years 
(1989-2011) is 50 %.  

46 % 

52 % 

Agriculture 
development17 

and 

rural 

Cohesion policy 

Other management types19 

85% 

77 % 

69 % 

93 % 

92% 

92% 

the 

The  figures  indicated  in  this  row  refer 
to 
implementation  of 
financial  corrections  decided  by  the 
Commission18. 

rate  of 

the 

the 

The  figures  indicated  in  this  row  refer 
implementation  of  financial 
to 
corrections made by the Commission in 
order  to  exclude  from  EU  funding 
expenditure  that  is  not  in  accordance 
with 
and 
applicable 
regulations.  Financial  corrections  may 
also  be  applied  following  detection  of 
serious  deficiencies  in  the  management 
and  control  systems  of  Member  States. 
Issuing  orders 
to  recover  amounts 
unduly  paid  is  just  one  of  the  means 
to 
available 
implement financial corrections. 

the  Commission 

rules 

to 

the  recovery  of  amounts 
Concerns 
unduly  paid  because  of  errors  or 
irregularities 
the 
Commission or OLAF, Member States, 
the European Court of Auditors, for the 
part of the budget which is not executed 
under shared management. 

detected 

by 

3.1. 

Revenue (traditional own resources) 

For traditional own resources, Member States are under an obligation to recover the unduly 
not  collected  and  to  register  them  in  the  OWNRES  database.  The  amount  to  be  recovered 
following  irregularities  detected  in  2011  is  EUR  321  million  (approximately  1.43 %  of  the 
total amount of TOR collected for 2011). EUR 166 million has already been recovered by the 
Member  States  for  cases  detected  in  2011,  giving  a  recovery  rate  for  2011  of  52 %.  In 

17 
18 
19 

In this category some instruments of rural development under pre-accession assistance are included.  
In any case the amounts not reimbursed in the same year are reimbursed in the following year.  
This category "Other management types) includes the part of the EU budget that is managed under the 
direct  management  mode.  Within  this  category  fall  the  pre-accession  assistance  (excluding  rural 
development),  whose  reported  irregularities  are  analysed  under  paragraphs  2.1.2.3,  and  the  recovery 
orders issued by the Commission analysed in paragraph 2.2. 

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16 

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addition, the Member States continued their recovery activities related to cases from previous 
years.  In  2011,  all  27  Member  States  recovered  a  combined  total  of  approximately 
EUR 305 million related to cases detected between 1989 and 2011. 

Member  States’  activities  to  recover  TOR  are  monitored  by  means  of  TOR  inspections  and 
through  the  procedure  requiring  that  all  amounts  exceeding  EUR  50 000  that  are  finally 
declared irrecoverable by Member States must be reported to the Commission. Member States 
are  held  financially  liable  for  the  non-recovery  of  TOR  in  cases  where  weaknesses  are 
observed in their recovery activities. 

Over 98 % of all amounts of TOR established are collected without any particular problem. 

3.2. 

Expenditure managed by the Member States 

3.2.1.  Natural resources (agriculture and European Fisheries Fund) 

In  the  area  of  agriculture,  in  the  framework  of  conformity  clearance  procedures,  audit 
missions  were  performed  which  resulted  in  financial  corrections  implemented  by  the 
Commission for a total of EUR 822 million on a total of EUR 1 068 million decided (77%). 

In addition, in relation to the European Agricultural Guarantee Fund (EAGF) Member States 
recovered from beneficiaries EUR 173 million during the 2011 financial year. As a result, by 
the  end  of  the  2011  financial  year,  44 %  20  of  the  debts  from  the  EAGF  dating  from  2007 
onwards  had  already  been  recovered  by  the  Member  States.  The  financial  clearance 
mechanism (‘50/50’ rule) introduced by Regulation (EC) No 1290/200521, provides a strong 
incentive for Member States to recover undue payments from the beneficiaries as quickly as 
possible.  

Nevertheless,  the  outstanding  accumulated  EAGF  amount  remaining  to  be  recovered  from 
beneficiaries by national authorities at the end of the 2011 financial year was EUR 1.2 billion. 
The amount outstanding to the EU budget is, however, lower as, since 2006, Member States 
have already paid large non-recovered sums (EUR 0.45 billion) to the EU budget by applying 
the 50/50 rule. 

During the years 2008-2011, the Commission audited the new clearance mechanism by means 
of  on-the-spot  checks  on  the  national  authorities  responsible  for  18  paying  agencies  in  13 
Member States, covering 90 % of the total outstanding debt at the end of the 2011 financial 
year. 

3.2.2.  Cohesion policy 

In  2011  in  the  area  of  cohesion  policy,  the  Commission  had  already  completed  financial 
corrections for EUR 624 million of the EUR 673 million decided (93 %). 

The  cumulative  rate  of  implementation  of  financial  corrections  (including  all  years  up  to 
2011) rose to 72 %, leaving EUR 2.5 billion outstanding. 

20 
21 

This percentage concerns only recoveries. 
If a Member State fails to recover an amount unduly paid from the beneficiary within four years of the 
primary administrative or judicial finding (or, in the case of proceedings before national courts, within 
eight years), 50 % of the non-recovered amount is charged to the budget of the Member State concerned 
as part of the annual financial clearance of the EAGF and EAFRD accounts. 

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Member States are primarily responsible for recovering, from beneficiaries, amounts unduly 
paid  plus,  where  applicable,  any  interest  for  late  payment.  The  amounts  recovered  by  the 
Member  States  are not included in  this  report, which presents only the financial corrections 
established by the Commission. 

For the period 2007-2013, Member States are obliged to provide the Commission with data on 
the  amounts  withdrawn  from  co-financing  before  the  national  recovery  process  is  finalised 
and the amounts effectively recovered from beneficiaries at national level. These data (partial 
in relation to the total sums involved in recoveries and financial corrections) are presented in 
the  Commission  Staff  Working  Paper  ‘Statistical  Evaluation  of  Irregularities  reported  in 
2011’. 

3.2.3.  Other management types 

Concerning  the  part  of  the  EU  budget  that  is  managed  under  the  direct  management  mode, 
expenditure that is not in accordance with applicable rules and regulations is either the subject 
of  a  recovery  order  established  by  the  Commission  or  deducted  from  the  subsequent  cost 
statement22. 

Confirmed  recovery  orders  related  to  the  part  of  the  budget  not  executed  under  shared 
management  concern  EUR  377  million.  Of  these,  EUR  346  million  have  been  recovered 
(92%). 

3.2.3.1.  Pre-accession assistance 

In the case of pre-accession assistance, the beneficiary countries are primarily responsible for 
recovering, from beneficiaries, amounts unduly paid plus, where applicable, any interest for 
late payment. The information provided in this report is based on the cases of suspected fraud 
and irregularities reported by the beneficiary countries. 

In  relation  to  the  cases  reported  in  2011,  the  recovery  rate  has  significantly  improved 
compared with previous years, with a total of almost EUR 26 million recovered (46%). 

The overall cumulative recovery (of all amounts reported, including previous years) has also 
improved, with more than EUR 100 million recovered and a recovery rate of more than 60 %. 

These  positive  results  are  directly  linked  to  the  closure  of  the  pre-accession  assistance 
programmes. 

3.2.3.2.  Expenditure managed by the Commission 

For the recovery orders flagged both as fraudulent or non-fraudulent irregularities and issued 
in  2011,  full  or  partial  recovery  was  recorded  in  almost  all  of  the  922  irregular  cases.  The 
recovery rate for recoveries qualified as ‘irregularity reported as fraudulent’ is 50%; the rate 
for other irregularities is 64%. 

22 

If  the  deduction  is  directly  made  by  the  beneficiary  in  the  cost  statement,  the  information  cannot  be 
registered in the Commission's accounting system. 

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18 

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4. 

ANTI-FRAUD POLICIES AT EU LEVEL 

4.1. 

Anti-fraud policy measures launched by the Commission in 2011 

4.1.1.  OLAF reform proposal 

The basic Regulation defining OLAF’s main role and remit for carrying out its administrative 
investigations23  is  currently  being  reviewed.  Building  on  a  reflection  process  carried  out 
during 2010, in March 2011 the Commission presented an amended proposal to improve the 
legislative  framework  governing  the  work  of  OLAF  to  the  co-legislators,  the  European 
Parliament and the Council of the European Union. 

The amended proposal aims to make OLAF’s investigations more efficient, while at the same 
time clarifying the procedural rights of the persons concerned. 

The proposal has been analysed by the Council at working group level and, in June 2012, was 
examined  in  an  informal  trilogue  between  the  European  Parliament,  the  Council  and  the 
Commission. 

4.1.2.  Commission Anti-Fraud Strategy 

To  improve  prevention  and  detection  of  fraud  at  EU  level,  in  June  2011  the  Commission 
adopted a Communication on the Commission Anti-Fraud Strategy24. The strategy is directed 
primarily  to  the  Commission  departments  that  manage  EU  funds  and  sets  the  following 
priorities: 

• 

• 

• 

inclusion  of  adequate  anti-fraud  provisions  in  Commission  proposals  on  spending 
programmes under the new multiannual financial framework; 

development and implementation of anti-fraud strategies at Commission department 
level with the assistance of OLAF; 

revision  of  the  public  procurement  directives  in  order  to  simplify  requirements  and 
reduce the risks of procurement fraud in the Member States. 

In  2011  and  early  2012,  progress  was  made  with  inserting  anti-fraud  provisions  in  the 
financing  programmes,  with  setting  up  a  fraud  prevention  network  and  with  creating  a 
dedicated fraud prevention site accessible to all Commission departments. Implementation of 
the strategy should be completed by 2014. 

4.1.3.  Commission Action Plan to fight smuggling of cigarettes and alcohol along the EU’s 

eastern border 

Smuggling of highly taxed goods, mainly cigarettes and alcohol, causes significant losses of 
revenue to the budgets of the EU and its Member States. The direct loss in customs revenue as 
a result of cigarette smuggling in the EU is estimated at more than EUR 10 billion a year. To 
help  tackle  this  problem,  in  June  2011  the  Commission  launched  an  Action  Plan  to  step  up 
efforts to fight smuggling of cigarettes and alcohol along the EU’s eastern border25. 

23 
24
25 

Regulation 1073/1999. 
COM(2011) 376 final. 
SEC(2011) 791. 

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19 

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The Action Plan analyses existing initiatives and problems and proposes targeted action to be 
carried out by 2014, with the help of the Member States, Russia and the Eastern Partnership 
countries  (Armenia,  Azerbaijan,  Belarus,  Georgia,  Moldova  and  Ukraine).  This  action 
includes:  supporting  the  development  of  enforcement  capacity  and  providing  technical 
assistance  and  training;  strengthening  the  deterrents  and  raising  awareness;  and  stepping  up 
operational  cooperation  between  the  competent  services  in  the  region,  including  sharing  of 
intelligence and closer international cooperation. 

Some  of  these  measures  have  been  taken  in  the  meantime.  Examples  include:  a  targeted 
regional  operational  conference  on  tobacco  smuggling  held  in  Romania  at  the  end  of  June 
2011; the posting of an OLAF liaison officer to the EU Delegation in Kiev in order to tighten 
cooperation  with  the  competent  Ukrainian  law  enforcement  services;  and  a  joint  customs 
operation  targeting,  for  the  first  time,  smuggling  of  tobacco  products  and  synthetic  drug 
precursors by rail along the EU’s eastern border (see section 4.2.5.3 of this report). 

Achieving  the  objectives  of  the  Action  Plan  was  one  of  the  main  priorities  in  2011  and 
remains a key objective in 2012. 

4.1.4.  Commission  measures  to  protect  the  financial  interests  of  the  EU  by  criminal  law 

and by administrative investigations 

In  protecting  EU  finances,  Member  States  apply  national  rules.  As  a  consequence,  the 
conviction rate in cases involving offences against the EU budget varies considerably across 
the EU from one Member State to another, ranging from 14 % to 80 %. At the same time, the 
criminal law systems of the Member States have been harmonised to only a limited extent26, 
judicial cooperation is not sufficiently effective and there is a tendency to restrict prosecutions 
to domestic cases, ignoring the European dimension. 

Overall,  there  are  insufficient  deterrents  against  criminal  misuse  of  the  EU  budget. 
Consequently, the Commission announced that it intends to reinforce the legal framework to 
protect the EU’s financial interests in a number of areas27, including: 

• 

• 

• 

26

27 

the  definition  of  the  major  offences  affecting  the  EU’s  financial  interests  (such  as 
fraud) and of other relevant criminal offences (such as embezzlement); 

the  procedural  framework,  where  action  is  necessary  to  improve  cooperation  and 
exchanges of information between all competent authorities; 

the  institutional  framework  for  investigating,  prosecuting  and  bringing  to  judgment 
perpetrators of offences against the EU’s financial interests. This includes reinforcing 
the  existing  bodies  —  Eurojust  and  OLAF  —  and  establishing  a  specialised 
European Public Prosecutor’s Office. 

Second Report on implementation of the Convention on the Protection of the EU’s Financial Interests 
(COM(2008) 77). 
Communication from the Commission on the protection of the financial interests of the European Union 
by  criminal  law  and  by  administrative  investigations  —  An  integrated  policy  to  safeguard  taxpayers’ 
money, COM(2011) 293, 26 May 2011, and Commission Staff Working Document accompanying the 
Communication, SEC(2011) 621. 

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On  the  first  point,  the  Commission  tabled  a  legislative  proposal  on  11  July  201228.  With  a 
view  to  the  other  areas,  the  Commission  is  currently  considering  the  different  options  for 
proposals. 

In addition, the Commission sees a need for stronger protection of euro banknotes and coins 
with  criminal  penalties  in  line  with  the  Commission  work  programme.  This  might  include 
enabling  all  Member  States  to  use  the  same  range  of  investigative  techniques  and  setting 
minimum penalties. The Commission is preparing a legislative proposal on this subject. 

4.1.5.  Multiannual financial framework (MFF) for 2014-2020 — Hercule III and Pericles 

2020 Programmes 

With a  view  to reinforcing  prevention of and the fight against fraud, in December 2011 the 
Commission  adopted  proposals  for  financing  two  programmes:  Hercule  III29  and  Pericles 
202030. Both proposals were made in the context of the new multiannual financial framework 
for 2014-2020 and are successors to ongoing programmes that will expire at the end of 2013. 

Hercule III is a financing programme specifically focusing on fighting fraud, corruption and 
any  other  illegal  activities  affecting  the  financial  interests  of  the  EU.  It  provides  for  the 
procurement of specialised equipment and databases to be used by national law enforcement 
agencies and training for anti-fraud specialists. The total budget proposed for the seven-year 
period is EUR 110 million. 

The  new  additions  proposed  in  Hercule  III  aim  for  rationalisation  of  the  objectives  and 
simplification  of  implementation,  compared  with  the  current  programme.  For  technical 
assistance support to the Member States, the proposal includes an increase in the co-funding 
rate from 50 % to 80 %, at the request of a substantial number of stakeholders, so that Member 
States with more limited capacity to co-finance can also benefit from these programmes. 

The Pericles Programme provides training and assistance on protection of euro banknotes and 
coins  against  fraud  and  counterfeiting.  It  supports  multidisciplinary  and  transnational 
workshops, meetings and seminars, targeted placements and exchanges of staff from national 
authorities  in  the  EU  and  worldwide  and  also  provides  technical,  scientific  and  operational 
support. 

The  Pericles  2020  proposal  also  includes  new  features,  such  as  the  possibility  to  purchase 
relevant equipment and an increase in the co-financing rate (up to 90 % in exceptional cases). 
The total budget proposed for the seven-year period is EUR 7.7 million. 

Both proposals are to be discussed by the European Parliament and the Council in 2012. 

4.1.6.  New organisation of OLAF and its investigation procedures 

In  March  2011,  OLAF  launched  an  internal  review  focusing  notably  on  improving  the 
organisational structure of OLAF and its investigation procedures. 

28 
29 
30 

COM(2012) 363 final. 
COM(2011) 914 final. 
COM(2011) 913 final. 

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21 

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Based on the review, a new OLAF organisation chart entered into force on 1 February 2012. 
The  new  structure  reduced  the  overheads  and  administrative  burden,  increased  by  30 %  the 
number  of  staff  assigned  to  investigations  and  consolidated  the  role  of  OLAF  as  the 
Commission department in charge of overall anti-fraud policy. Investigation procedures were 
streamlined and a new set of investigation policy priorities was established. 

4.2. 

Other policy measures taken by the Commission in 2011of relevance to the fight 
against fraud 

4.2.1.  Commission Communication on Fighting Corruption in the EU 

Implementation  of  the  anti-corruption  legal  framework  remains  uneven  across  EU  Member 
States  and  unsatisfactory  overall.  Consequently,  the  Commission  presented  an  overall  EU 
anti-corruption policy for the next few years31. The Commission called for a sharper focus on 
corruption in a range of policy fields and pointed to a number of measures, including closer 
cooperation,  modernised  EU  rules  on  confiscation  of  criminal  assets,  revised  public 
procurement  legislation,  better  crime  statistics  and  greater  use  of  conditions  in  cooperation 
and development policies. 

The Commission will prepare an EU Anti-Corruption Report every two years, as of 2013. The 
report  will  aim  to  intensify  the  anti-corruption  measures  and  cement  mutual  trust  between 
Member States, while also identifying EU trends, facilitating exchanges of best practice and 
preparing the ground for future EU policy measures. 

4.2.2.  Modernisation of public procurement rules 

Based on the results of a public consultation, on 20 December 2011, the Commission adopted 
proposals32  to  modernise  the  Public  Procurement  Directives.  These  aim  to  make  sure  that 
Member States put in place effective mechanisms to prevent unsound business practices and 
to improve transparency. The Commission considers that such measures are not only for fair 
competition  between  tenders  but  also  to  ensure  efficient  use  of  taxpayers’  money  by  the 
public authorities. 

In  parallel,  the  Commission  proposed  basic  transparency  measures  and  procedural 
requirements applicable to the award of concessions provisions33 for exclusion of candidates 
convicted  for  corruption,  money-laundering  and  fraud,  and  measures  to  prevent  conflicts  of 
interest.  

31

32

33

Communication  from  the  Commission  to  the  European  Parliament,  the  Council  and  the  European 
Economic and Social Committee of 6 June 2011 on Fighting Corruption in the EU — COM(2011) 308 
final. 
Proposal for a Directive on public procurement, COM(2011) 896 final — 2011/438 (COD), and 
proposal for a Directive on procurement by entities operating in the water, energy, transport and postal 
services sectors, COM(2011)895 final 2011/439 
(COD):http://ec.europa.eu/internal_market/publicprocurement/modernising_rules/reform_proposals_en.
htm.  
Proposal  for  a  Directive  of  the  European  Parliament  and  of  the  Council  on  the  award  of  concession 
contracts COM(2011) 897 final - 2011/0437 (COD).  

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4.2.3.  Cohesion policy 

With regard to cohesion policy for the period after 2013, the Commission believes there is a 
need  to  strengthen  the  anti-fraud  aspects  through:  introduction  of  a  system  of  national 
accreditation; a management declaration of assurance; and an annual clearance of accounts to 
increase  assurance.  In  particular,  as  regards  the  financial  management  and  control  of  the 
programmes, the Commission proposed that the managing authority put in place effective and 
proportionate anti-fraud measures taking into account the risks identified34. 

4.2.4.  Direct expenditure 

With  regard  to  prevention,  detection  and  investigation  of  fraud  related  to  direct  expenditure 
and  external  aid,  the  Commission  has  proposed  introducing  a  standard  clause35  on  the 
protection  of  the  financial  interests  of  the  Union  in  all  new  MFF  proposals  for  the  period 
2014-2020, with a view to enhancing consistency across the spending programmes. 

4.2.5.  Customs 

4.2.5.1.  Anti-Fraud Transit Information System 

To  step  up  the  fight  against  customs-related  fraud,  it  is  important  to  keep  all  authorities 
involved informed about the movements, within the EU, of goods in transit. For that purpose, 
the Commission (OLAF) has designed and put in place a central repository containing such 
information,  called  the  Anti-Fraud  Transit  Information  System  —  ATIS  for  short.  Since 
1 September 2011, the Commission, the Member States and EFTA countries36 have access in 
real time to ATIS. 

4.2.5.2.   

Mutual administrative assistance (MAA) and related anti-fraud provisions with 

third countries 

In  order  to  ensure  proper  application  of  customs  legislation,  various  agreements,  such  as 
preferential  trade  and/or  cooperation  agreements,  non-preferential  agreements  and  customs 
agreements,  contain  provisions  on  mutual  administrative  assistance  (MAA)  and  on 
preventing, investigating and combating breaches of customs legislation. 

At the end of 2011, 43 agreements covering a total of 58 countries were in force; negotiations 
on preferential trade were under way with India, Canada, Singapore, Malaysia, the Mercosur 
region, Georgia, Moldova and six EPA (Economic Partnership Agreement) regions. 

4.2.5.3.  Joint customs operations (JCO) 

The  customs  authorities  of  EU  Member  States,  and  also  of  some  non-EU  countries,  in 
cooperation  with  OLAF,  carry  out  regular  joint  operations  of  limited  duration  aimed  at 
combating smuggling of sensitive goods and fraud in certain risky areas and/or on identified 

34

35

36 

In particular, Article 114(c) of the proposal, COM(2011) 615. 
See,  for  example,  the  proposal  for  a  Regulation  of  the  European  Parliament  and  of  the  Council  on  a 
consumer  programme  for  2014-2020,  COM(2011)  707  final,  9.11.2011,  and  the  proposal  for  a 
Regulation  of  the  European  Parliament  and  of  the  Council  establishing  Horizon  2020  —  The 
Framework Programme for Research and Innovation (2014-2020), COM(2011) 809 final, 30.11.2011. 
Except Switzerland. 

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23 

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trade  routes.  The  Commission  (OLAF)  initiates  these  joint  customs  operations  and/or 
provides the necessary support. 

In April 2011, a joint customs operation code-named ‘Fireblade’ was organised by Hungary 
and the Commission (OLAF), in cooperation with Europol. All the EU Member States were 
invited to participate, plus Croatia, Ukraine and Moldova. It led to the detention of more than 
28 000 pieces/pairs of counterfeit textile products and accessories attempting to enter the EU 
by road across the eastern border. The financial impact of these seizures adds up to at least 
EUR 1 million  for  the  market  value  of  the  detained  counterfeit  goods  plus  at  least 
EUR 1.5 million for evaded duties and taxes on the smuggled  cigarettes detected during the 
operation. 

In  October  2011,  the  Polish  Customs  Service,  in  close  cooperation  with  OLAF,  launched  a 
joint  customs  operation  code-named  ‘Barrel’.  Twenty-four  EU  Member  States  plus  Croatia, 
Turkey, Norway and Switzerland took part. This was the first joint customs operation on rail 
transport,  targeting  smuggling  of  tobacco  products  and  synthetic  drug  precursors  along  the 
EU’s  eastern  border.  As  a  result,  around  1.2  million  cigarettes  were  found  on  freight  trains 
carrying  wood  and  iron  and  were  seized.  They  would  have  meant  losses  of  at  least 
EUR 205 000 in evaded customs duties and taxes. 

4.2.6.  VAT 
Based  on  the  outcome  of  a  public  consultation37  but  also  on  the  discussions  with  Member 
States  and  the  opinions  expressed  by  the  European  institutions,  in  December  2011the 
Commission adopted the Communication entitled ‘The future of VAT — Towards a simpler 
and more robust and efficient VAT system tailored to the single market’38. 

New  ways  of  improving  the  fight  against  fraud  will  be  explored,  such  as  improving  the 
administrative cooperation with third countries, a quick reaction mechanism for tackling new 
fraud and studies on new tax collection systems. 

The Commission will also provide technical and capacity-building assistance to help Member 
States make their tax administrations more effective, efficient and fraud-proof. In addition, the 
Commission  is  setting  up  a  permanent  EU  forum  in  which  tax  authorities,  business 
representatives and the Commission will discuss anti-fraud  issues  related  to  management of 
the VAT system. 

4.2.7. 

International conventions, instruments and administrative cooperation arrangements 

In a globalised world, fraud is increasingly being committed across international borders. It is 
therefore  important  to  step  up  cooperation  with  countries  and  international  organisations  all 
over  the  world  that  are  beneficiaries  of  EU  funds  and/or  donors  alongside  the  European 
Union. 

A strong legal framework, with clear commitments from the partner countries, is necessary to 
ensure sound financial management of the funds they receive from the EU and to cooperate 
with  the  EU  to  fight  fraud  and  corruption.  In  order  to  establish  such  a  framework,  the 

37 
38 

COM(2010) 695. The public consultation ended on 31 May 2011. 
COM(2011) 851. 

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European Commission has been proposing a set of control and anti-fraud provisions in new or 
renegotiated bilateral agreements. 

In 2011, such provisions39 were proposed in the draft agreements with beneficiary countries 
such as Afghanistan and Kazakhstan and the draft Association Agreements with three Eastern 
Partnership  countries:  Armenia,  Azerbaijan  and  Georgia.  More  streamlined  provisions 
focusing on exchanges of information were also proposed with leading donor countries such 
as Australia. The European External Action Service and the European Commission will press 
for  such  provisions  to  be  included  in  the  new  agreements  with  these  countries  during 
negotiations in 2012. 

During 2011, the Commission (OLAF) launched a major campaign to step up cooperation and 
especially exchanges of information on the fight against fraud with international organisations 
such as the World Bank Integrity Vice-Presidency. 

4.2.8.  Fight against illicit trade in tobacco products at international level 

The Commission coordinated the EU position and, with the Council Presidency, represented 
the  EU  during  the  negotiations  on  the  Protocol  on  the  Elimination  of  the  Illicit  Trade  in 
Tobacco  Products  under  the  World  Health  Organisation  (WHO)  Framework  Convention  on 
Tobacco Control (FCTC). 

Five meetings of the Intergovernmental Negotiation Body (INB) have taken place, the latest 
(INB5) in Genevafrom 28 March to 4 April 2012. Following intensive negotiations at INB5, a 
Draft Protocol on the Elimination of the Illicit Trade in Tobacco Products was agreed. 

The Draft Protocol will be submitted for consideration and adoption at the Conference of the 
Parties to the WHO FCTC) in Seoul, South Korea, in November 2012. 

4.3. 

Implementation of anti-fraud programmes  

4.3.1.  Hercule II Programme 

In  2011,  the  Hercule  II  Programme  continued  focusing  on  improving  transnational  and 
multidisciplinary cooperation between the Member States and the Commission in fighting and 
preventing fraud against the EU’s financial interests. 

Emphasis was placed on: detecting and preventing unlawful imports of illegal or counterfeit 
products,  including  cigarettes  and  tobacco  (EUR  5.1  million);  conferences,  seminars  and 
training (EUR 4.8 million); payments for use of external databases for investigation purposes 
(approximately EUR 2.9 million); and academic research (EUR 0.7 million). 

4.3.2.  Pericles Programme 

The  Pericles  Programme  provides  training  and  technical  assistance  to  national  authorities 
responsible  for  protection  of  euro  banknotes  and  coins  against  fraud  and  counterfeiting.  In 
2011,  the  Commission  (OLAF)  took  part  in  15  Pericles  activities,  including  conferences, 
seminars and staff exchanges organised by  Member States and/or the Commission (OLAF). 

39 

These  provisions  differ  from  the  ones  mentioned  in  section  4.2.5.2,  in  that  the  former  concern  EU 
spending and the latter customs (revenue). 

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The  Pericles  strategy  focuses  on  EU  Member  States  and  aims  to  strengthen  regional 
cooperation in critical areas. In 2011, the budget allocated under the Pericles Programme was 
EUR 1 million, of which 100 % was committed. 

4.3.3.  The Anti-Fraud Information System (AFIS) 

The Anti-Fraud Information System (AFIS) is a set of anti-fraud applications aiming at timely 
and  secure  exchanges  of  fraud-related 
the  national  and  EU 
administrations responsible. AFIS is operated by the Commission (OLAF) and encompasses 
two  major  areas:  mutual  assistance  in  customs  matters  (joint  customs  operations,  secure  e-
mail, Anti-Fraud Transit Information System, etc.) and management of irregularity reports by 
Member States and beneficiary countries. 

information  between 

The number of AFIS users has been increasing steadily to nearly 10 000 in more than 1 200 
competent  authorities 
international 
organisations, Commission departments and other EU institutions. 

from  Member  States,  partner 

third  countries, 

In  2011,  AFIS  was  funded  from  an  operational  budget  of  EUR  6  million,  used  mainly  for 
maintenance, development and production services (EUR 4.8 million) with the rest going to 
technical assistance, training and hardware (EUR 1.2 million). The 2011 budget for AFIS was 
fully implemented, with 99 % committed. 

4.4. 

European  Parliament  resolution  of  6  April  2011  on  protection  of  the 
Communities’ financial interests — Fight against fraud — Annual report 2009 

The European Parliament adopted its resolution concerning the Commission’s 2009 report on 
6 April 201140. The resolution  contains specific requests, comments  and proposals  covering 
all sectors of the budget. It is addressed to the Commission and the Member States and covers 
a  wide  range  of  topics,  such  as  publication  of  the  beneficiaries  of  EU  funds,  national 
management  declarations  and  public  procurement.  It  criticises  the  situation  regarding 
recovery  of  EU  funds  in  all  areas  and  the  low  number  of  irregularities  reported  by  certain 
Member States in particular sectors. 

The European Parliament welcomed the introduction of the Irregularity Management System 
and acknowledged the progress made in certain areas, such as the improvement in the overall 
discipline shown by Member States in reporting irregularities in agriculture. It also noted the 
successful outcome of the joint customs operation code-named ‘Diabolo II’ and coordinated 
by the European Commission through OLAF. 

The Commission has submitted a follow-up report to the Parliament indicating the practical 
action it intends to take in response to the resolution. In particular, the Commission pointed 
out  that  it  had  adopted  a  number  of  simplifications  in  all  areas  under  shared  management, 
with the aim of easing the workload on Member States. In return,  the latter are expected to 
improve the quality, timeliness and completeness of their irregularity reports. 

40

http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-2011-
0142+0+DOC+XML+V0//EN&language=EN. 

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4.5. 

Advisory Committee for Coordination of Fraud Prevention (COCOLAF) 

Under  Article  325  of the  Treaty on the Functioning of the European  Union, Member  States 
organise,  together  with  the  Commission,  close  and  regular  cooperation  between  their 
competent  authorities.  This  takes  place  within  the  Advisory  Committee  for  Coordination  of 
Fraud Prevention41. 

The Committee met twice in 201142. It was kept informed of progress with carrying out the 
Commission’s  anti-fraud  programme  and  put  forward  its  own  suggestions.  Among  other 
issues, it discussed: effective implementation of the EU legislation on fraud prevention and its 
application  at  national  level;  annual  reporting  and  exchanges  of  information  between  the 
Member  States  and  the  Commission,  in  particular  with  regard  to  suspected  and  established 
fraud cases and irregularities; and risk analysis. 

In particular, the Committee explored ways to tighten up anti-fraud measures in the Member 
States, notably by setting up a dedicated COCOLAF subgroup for structural action. Member 
States emphasised the added value of such meetings, notably for exchanging best practice. 

5. 

5.1. 

MEASURES  TAKEN  BY  THE  MEMBER  STATES  TO  COUNTER  FRAUD  AND  OTHER 
ILLEGAL ACTIVITIES AFFECTING THE FINANCIAL INTERESTS OF THE EU 

Results  of  the  questionnaire  about  the  controls  to  combat  irregularities  and 
fraud against the financial interests of the EU in the area of cohesion policy 

Each year the Commission and the Member States choose a topical issue of particular interest 
(for  example  in  risk  areas),  which  is  featured  in  the  following  year’s  anti-fraud  report, 
drawing on the answers to a questionnaire sent by the Commission to the Member States. This 
focus  facilitates  exchanges  of  information  and  best  practices  between  Member  States  and 
monitoring of anti-fraud measures. 

This year’s special topic spotlights the controls to combat irregularities and fraud against the 
financial interests of the EU in the area of cohesion policy43. It covers information about anti-
fraud  investigations,  the  legislative  and  administrative  measures  and  strategies  in  place,  the 
use  of  fraud  indicators,  the  amounts  recovered  in  connection  with  anti-fraud  investigations 
and data on personnel assigned to and involved in anti-fraud investigations. 

All the Member States reported legislative or administrative measures that they had taken in 
the period 2007-2011. In the view of the Member States, these have contributed substantially 
to better prevention of fraud in the area of cohesion policy and/or to improvements in the risk 
management system. 

These  measures  concern,  among  other  things,  the  eligibility  rules,  on-the-spot  checks  and 
controls,  reporting  and  processing  of  fraud  and  general  irregularities,  recovery  procedures, 

41 

42 

43 

COCOLAF  was  set  up  in  1994  by  Commission  Decision  94/140  of  23  February  1994,  which  was 
subsequently amended by the Commission Decision of 25 February 2005, OJ L 71, 17.3.2005, pp. 67–
68. 
One additional ad hoc meeting takes place during the year and one meeting of the working subgroup on 
risk analysis. 
A  more  in-depth  analysis  of  national  practices  is  given  in  the  relevant  Commission  Staff  Working 
Paper. 

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cross-checks  to  detect  and  eliminate  double  financing  of  projects,  public  procurement 
procedures, introduction of penalties, action to counter fraud and corruption, establishment of 
coordination bodies to combat fraud affecting the financial interests of the EU, participation 
by staff in training sessions and seminars and prosecution of the beneficiaries and of anyone 
involved in cases of suspected fraud and corruption. 

In terms of effectiveness and efficiency, almost all the Member States44 reported a strong and 
proactive  approach  with  more  irregularities  detected  before  payment  as  a  result  of  the 
preventive  measures  taken  and,  consequently,  a  lower  number  of  irregularities  eventually 
reported.  Some  Member  States45  pointed  to  sharp  reductions  in  the  numbers  of  cases  of 
suspected  fraud  detected,  fewer  errors  in  tenders  and  greater  transparency  throughout  the 
whole process. In terms of reliability of financial reporting, most Member States46 reported a 
higher proportion of accepted eligible amounts. 

As regards compliance with the rules, some Member States47 mentioned the preventive impact 
of  the  Commission  Guidelines  on  public  procurement48,  the  Commission  Note  on  fraud 
indicators49,  the  national  provisions  on  public  procurement,  the  Irregularities  Notification 
Manual and Guidelines and the provisions of Articles 27 to 36 (Irregularities) of Regulation 
(EC) No 1828/2006. 

Most of the Member States50 reported that they were using national or regional strategies or 
‘types of operations’51 such as measures or plans put in place to prevent fraud and to detect 
cases of fraud in spending from the cohesion funds better. The rest52 were satisfied with the 
existing  situation  and  had  put  in  place  or  planned  no  new  strategies  during  the  period 
surveyed to reduce the risk of fraud. 

Most  Member  States53  replied  that  they  use  general  indicators  to  redirect  their  controls  and 
that  these  contribute  to  detecting  fraud  and  to  improving  the  results  of  anti-fraud  control 
activities.  

All  the  Member  States  reported  on  anti-fraud  investigations  performed  and  criminal 
proceedings completed in relation to cohesion policy projects financed under the 2000-2006 
and 2007-2013 programming periods. Some Member States included the obligatory ‘on-the-
spot checks’ provided for in the EU regulations in the administrative anti-fraud investigations. 
Some look for possible fraud by conducting on-the-spot checks,  checks on payment  claims, 
preliminary  procurement  checks  and  sample  checks  of  systems  audits  and  experience.  If 
suspicions  are  raised,  additional  checks  are  carried  out  and,  where  necessary,  a  report  is 
lodged with the law enforcementagencies. 

44 
45 
46 
47 
48 

49 
50 
51 
52 
53 

Except Greece and France. 
BG, CZ, EL, EE and UK. 
DE, ES, IE, IT, CY, LV, LT, LU, HU, NL, PL, PT, RO, FI and UK. 
BG, DE, EE, EL, ES, LT, LU, HU, MT, NL, AT, RO, SI, SK, SE and UK. 
Guidelines for determining financial corrections to be made to expenditure co-financed by the structural 
funds or the cohesion fund for non-compliance with the rules on public procurement: COCOF 
07/0037/03-EN. 
Information Note on fraud indicators for the ERDF, ESF and CF (COCOF 09/0003/00-EN). 
BG, CZ, EE, ES, FR, IT, CY, LT, LU, HU, MT, NL, AT, PT, RO, SI, SK and FI. 
DE, EL and LV. 
NL and UK. 
BG, CZ, DE, EE, EL, ES, IE, HU, MT, PL, RO, SI, SK and UK. 

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All the Member States consider their financial control to be sufficiently targeted on detecting 
fraud. 

Some  large  Member  States54  reported  a  very  limited  number  of  ongoing  criminal 
investigations.  Some  Member  States55  provided  valuable  data  on  anti-fraud  investigations 
performed and criminal proceedings completed, but others56 provided no data concerning the 
criminal  proceedings  completed  along  with  the  court  decisions.  Finally,  the  information 
provided  by  the  Member  States  concerning  the  amounts  recovered  in  relation  to  anti-fraud 
investigations covering the 2000-2006 and 2007-2013 programming periods indicates that, as 
a minimum, the reporting of the recovery process could be considered misleading and needs 
to be improved. In fact, no link could be established between the reported in the Irregularity 
Management  System  and  those  reported  under  this  exercise.  Two  Member  States57  reported 
large  amounts  and  only  one  third58  reported  that  amounts  above  EUR 1 million  had  been 
recovered  following  an  anti-fraud  investigation.  For  another  third59  the  amounts  reported  in 
this  exercise  are  of  low  value,  while  some  Member  States60  reported  no  amountat  all  or 
indicated as” non applicable”. 

The  Member  States’  responses  to  the  questionnaire  point  to  improvements  in  the  financial 
control  and  risk  management  system  to  prevent  fraud  in  the  area  of  cohesion  policy.  These 
include legal provisions and guidelines, national or regional strategies, use of risk indicators, 
administrative procedures and cooperation between national authorities. 

Conversely,  further  progress  is  needed  on  monitoring  the  results  of  the  administrative  and 
criminal anti-fraud investigations, including recovery of the amounts concerned61. 

It  is  also  clear  that  better  fraud  statistics  are  necessary  so  that  the  Commission  and  the 
Member  States  can  focus  their  efforts  in  higher-risk  areas.  In  that  respect,  the  Commission 
intends to put more emphasis in the reporting in this area. 

Member States are invited to monitor the results of criminal investigations and improve 
their fraud statistics. 

5.2. 

Implementation of 2010 recommendations 

In the report on protection of the Union’s financial interests in 2010, the Commission made a 
number  of  recommendations  to  the  Member  States,  in  particular  on  reported  cases  of  fraud 
and other irregularities, on recovery of irregular amounts and on use of the Central Exclusion 
Database (CED) under Article 95 of the Financial Regulation. 

The Commission monitored implementation of these recommendations by the Member States 
as part  of the 2011 reporting exercise. Some small improvements were observed, especially 

54 
55 
56 
57 
58 
59 
60 
61 

DE, FR and ES. 
BG, CZ, EE, HU, PL, PT, SK and SE. 
DE, EL, ES, FR, IT, LT, LU, HU, AT and RO. 
IT and PT. 
BG, EE, ES, IT, LV, LT, PT, SK, FI and UK. 
BE, CZ, IE and RO. 
DE, EL, FR, HU, MT, AT, SE and SI. 
See Tables 1 and 2 of the relevant Commission Staff Working Paper accompanying this report, pp. 9-
11, which summarise the data reported by the Member States. 

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with  implementation  of  the  IMS.  Only  one  Member  State62  still  has  to  complete 
implementation of the IMS. With regard to the reporting obligations63 concerning agriculture, 
some  progress  has  been  made  by  the  Member  States  concerned,  in  particular  in  relation  to 
personal data on individuals who have committed irregularities (fraudulent or non-fraudulent) 
and their compliance rate, but there is still room for improvement judging from the low rate of 
reporting of suspected fraud by the big Member States. 

Concerning  revenue,  most  of  the  Member  States  confirmed  that  their  national  strategies  in 
place  consistently  assess  the  risks  across  the  entire  sphere  of  customs  duties  and  that  the 
necessary proactive and preventive measures will be taken to combat potential fraud. 

As  regards  the  recommendation  on  setting  up  the  Central  Exclusion  Database  (CED)64,  a 
small  number  of  Member  States65  are  using  it  and  provided  progress  reports;  others  have 
either  taken  preliminary  measures  by  appointing  their  liaison  point  or  are  considering  using 
the  database  for  the  next  programme  cycle66.  To  this  date,  no  cases  were  reported  to  the 
Commission to this respect. 

6. 

CONCLUSIONS 

This report shows that in 2011 progress was made with adoption, by the Commission and the 
Member  States,  of  policy  measures  which  will  provide  stronger  protection  for  the  EU’s 
financial  interests.  Full  implementation  of  these  measures  will  require  close  cooperation 
between  the  EU  institutions  and  the  Member  States,  which  the  Commission  will  continue 
monitoring. 

The analysis of irregularities in 2011 shows an overall decrease in reported irregularities and 
improvements  in  the  results  of  recovery  of  EU  resources  unduly  paid.  This  decrease  was 
expected  following  the  acceleration  in  previous  years  which,  itself,  was  also  the  result  of 
improvements in controls and tools. 

The analysis also shows that efforts are still needed in every sector covered by the budget in 
order  to  maintain  progress  and  to  address  the  potential  adverse  effects  that  the  current 
financial crisis could have in the form of an increase in fraudulent acts against the EU budget. 
Consequently,  the  Commission  recommends  that  all  Member  States  put  in  place  adequate 
anti-fraud measures aimed at both prevention and detection, especially those for which these 
kinds of results seem to be missing or insufficient. 

It is also clear from the data received that further progress has yet to be achieved, especially in 
the area of recovery where procedures are still relatively long.  

62 
63 

64 

65 
66 

FR. 
The  full  answers  from  the  Member  States  to  the  recommendations  are  included  in  the  third  Staff 
Working Document accompanying this report. 
Under  Article  95  of  the  Financial  Regulation,  on  candidates  and  tenders  which  fall  into  one  of  the 
situations calling for exclusion referred to in the same Regulation. 
BG, CZ, MT, AT and PL. 
See  table  of  the  relevant  Commission  Staff  Working  Paper  accompanying  this  report,  p  6,  which 
summarises the situation for all Member States. 

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