COMMISSION STAFF WORKING DOCUMENT Methodology regarding the statistical evaluation of reported irregularities for 2011 Accompanying the document Report from the Commission to the European Parliament and to the Council Protection of the European Union's financial interests - Firth against fraud - Annual Report 2011
Date: 2012-07-19
Institutions: European Commission
Subjects: EU statistics, European Anti-fraud Office, activity report, agricultural expenditure, data collection, financial control, fraud against the EU, fund (EU), pre-accession aid, prevention of delinquency

EUROPEAN COMMISSION 

Brussels, 19.7.2012  
SWD(2012) 230 final 

COMMISSION STAFF WORKING DOCUMENT 

Methodology regarding the statistical evaluation of reported irregularities for 2011 

Accompanying the document 

Report from the Commission to the European Parliament and to the Council 

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

{COM(2012) 408 final} 
{SWD(2012) 227 final} 
{SWD(2012) 228 final} 
{SWD(2012) 229 final} 

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TABLE OF CONTENTS 

INTRODUCTION...................................................................................................................... 3 

1. 

THE LEGAL FRAMEWORK FOR IRREGULARITIES REPORTING ................... 4 

1.1. 

The legal framework .................................................................................................... 4 

1.1.1.  The reporting obligation............................................................................................... 5 

1.1.2.  Derogations to the reporting obligation ....................................................................... 6 

1.2. 

Implementation of the Reporting Obligation ............................................................... 6 

2. 

DEFINITIONS............................................................................................................. 8 

2.1. 

Legal definitions........................................................................................................... 8 

2.1.1. 

Irregularity.................................................................................................................... 8 

2.1.2.  Fraud ............................................................................................................................ 8 

2.1.3.  Suspected fraud ............................................................................................................ 9 

2.2. 

2.3. 

Definitions applied in the analysis ............................................................................... 9 

Indicators.................................................................................................................... 10 

2.3.1. 

Irregularity and Fraud Rates....................................................................................... 10 

2.3.2.  Fraud Frequency and Fraud Amounts Levels ............................................................ 11 

3. 

ELECTRONIC reporting systems.............................................................................. 11 

3.1. 

Commission Own Resources (OWNRES)................................................................. 11 

3.1.1.  Monitoring of establishment and recovery of TOR ................................................... 11 

3.1.2.  Procedure for managing Member States’ reports for write-off.................................. 13 

3.1.3.  Particular cases of Member State failure to recover TOR ......................................... 13 

3.1.4.  Detection of fraud and irregularity............................................................................. 13 

3.2. 

Irregularity Management System (IMS) .................................................................... 14 

3.2.1.  The national structures and users ............................................................................... 14 

3.2.2.  The modules ............................................................................................................... 14 

3.2.3.  Data input and data quality ........................................................................................ 15 

3.2.4.  Data analysis – cases of irregularity and (suspected) fraud ....................................... 15 

3.2.5. 

Impact of IMS on irregularity reporting..................................................................... 16 

3.3. 

Accrual Based Accounting System (ABAC) ............................................................. 17 

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COMMISSION STAFF WORKING DOCUMENT 

Methodology regarding the statistical evaluation of reported irregularities for 2011 

Accompanying the document 

Report from the Commission to the European Parliament and to the Council 

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

INTRODUCTION 

The  present  commission  staff  working  paper  accompanies  the  Annual  Report  from 
the Commission to the Parliament and the Council on the protection of the European 
Union’s  financial  interests  and  the  fight  against  fraud  (further  referred  to  it  as 
‘Report’) adopted on the basis of article 325 of the Treaty on the Functioning of the 
European Union (TFEU). 

This  document  describes  the  methodology  followed  regarding  the  statistical 
evaluation  of  irregularities  reported  as  fraud  and  other  irregularities  in  the  areas 
where Member States implement the EU budget (expenditures for natural resources, 
cohesion policy and pre-accession funds) and of the collection of the EU’s traditional 
own  resources,  as  well  as  in  the  area  of  expenditure  managed  directly  by  the 
Commission. 

EU  legislation  requires  Member  States  to  report  to  the  Commission,  on  a  quarterly 
basis,  irregularities  that  have  been  detected  in  the  areas  of  shared  management  and 
Traditional Own Resources1. 

Member  States  must  inform  the  Commission  whether  the  reported  irregularities 
constitute  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  fraud2)  and  must  update  the  reported  information  in 
relation to the completion of the relevant proceeding for the imposition of sanctions. 

In the area of expenditure managed directly by the Commission it is the Commission 
services,  which  have  to  qualify3  the  recoveries,  whether  they  encountered  errors, 
irregularities or suspected fraud. 

1 
2 

3 

provided that they do not fall in the derogations specifically foreseen by the relevant provisions 
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 and 
the  organisation  of  an  information  system  in  this  field  and  repealing  Council  Regulation  (EEC) 
No 595/91, OJ L 355, 15.12.2006, p. 56–62 
According  to  the  relevant  budgetary  and  financial  rules,  irregularity  constitutes  any  infringement  of 
regulatory  and/or  contractual  provisions;  meanwhile  in  case  the  irregularity  gives  rise  to  suspicion  of 
fraud, OLAF must be notified. 

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Regarding recoveries (with the exception of those related to Agriculture) the analysis 
in the Report is limited to the results of the actions undertaken by national authorities 
to  recuperate  amounts  unduly  paid  to  beneficiaries  (mostly  private  economic 
operators).  Recoveries  concerning  irregularities  –reported  as  fraudulent  or  not  - 
whose  amount  does  not  exceed  EUR  10 000  are  excluded  from  these  analyses  (see 
more in details: derogations to the reporting obligation). The section on Agricultural 
expenditure covers all recoveries. 

Furthermore,  the  recovery  amounts  reflects  the  amounts  recovered  by  the  national 
authorities  and  not  by  the  Commission  services.  The  exception  is  the  section 
dedicated  to  the  expenditure  directly  managed  by  the  Commission  services,  which 
uses  data  extracted  from  the  Commission  Accrual  Based  Accounting  (ABAC) 
system. 

1. 

THE LEGAL FRAMEWORK FOR IRREGULARITIES REPORTING 

1.1. 

The legal framework 

European legislation provides for the protection of the Union’s financial interests in 
all  areas  of  activity4.  The  FinR  sets  the  principles  and  rules  for  the  correct 
implementation  of  the  budget.  Member  States  are  required  to  notify  the  European 
Commission  (EC)  of  evidence  of  fraud  and  other  irregularities.  This  need  is 
particularly evident in those sectors of the EU budget where the main responsibility 
for management is with the Member States, namely, in the fields of Agriculture and 
Cohesion Policy (on the expenditure side) and Own Resources (on the revenue side). 
In  these  areas,  Member  States  must  inform  the  Commission  of  all  irregularities 
involving  more  than  EUR  10 000  of  EU  finances.  This  applies  at  all  stages  in  the 
procedure for recovering monies unduly paid or not received. 

Regulation  No  1150/2000  specifies  the  requirement  for  own  resources  and 
Regulation No 1848/2006 for the agriculture sector. For the Cohesion Policy, which 
runs  over  multi-annual  programmes  the  legal  framework  is  more  complex  and  is 
covered  by  Regulations  Nos  1681/945  and  1831/946  for  the  programming  periods 

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5 

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See  in  particular  for  traditional  own  resources:  Article  6(5)  of  Council  Regulation  (EC,  Euratom)  No 
1150/2000;  for  expenditure:  Articles  3  and  5  of  Council  Regulation  (EC)  No  1848/2006  of  14 
December  2006  (OJ  L  355,  15.12.2006)  for  Agriculture;  articles  3  and  5  of  Commission  Regulation 
(EC)  No  1681/94  of  11  July  1994  (OJ  L  178  of  12.7.1994),  as  amended  by  Regulation  (EC)  No 
2035/2005  of  12  December  2005  (OJ  L  328  of  15.12.2005)  for  the  Structural  Funds  until  the 
programming period 2000-2006 included; articles 3 and 5 of Regulation No 1831/94 of 26 July 1994 
(OJ L 191, 27.7.1994), as amended by Regulation (EC) No 2168/2005 of 23 December 2005 (OJ L 345 
of  28.12.2005)  for  the  Cohesion  Fund  until  the  programming  period  2000-2006  included;  articles  28 
and 30 of Commission Regulation (EC) No 1828/2006 of 8 December 2006 (OJ L 371, 27.12.2006) as 
amended by Commission Regulation (EC) No 846/2009 of 1 September 2009 (OJ L 250, 23.9.2009) for 
the Cohesion Policy 2007-2013; Articles 55 and 57 of Commission Regulation (EC) No 498/2007 of 26 
March 2007 (OJ L 120, 10.5.2007) as amended by Commission Regulation (EC) No 1249/2010 (OJ L 
341, 23.12.2010) for the European Fishery Fund (EFF). 
Regulation  1681/94  applies  to  the  Structural  Funds,  that  is  to  say  European  Regional  Development 
Fund  (ERDF),  European  Social  Fund  (ESF),  European  Agriculture  Guidance  and  Guarantee  Fund 
(EAGGF)  –  Section  Guidance  and  Financial  Instrument  for  Fisheries  Guidance  (FIFG).  It  has  been 
amended by Regulation No. 2035/2005 of 12 December 2005 
Regulation 1831/94 applies to the Cohesion Fund. It has been amended by Regulation No. 2168/2005 of 
23 December 2005. 

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until  the  2000-2006  and  by  Regulation  No  1828/20067  for  the  period  2007-20138. 
Regulation No 498/2007 covers the European Fishery Fund (EFF). 

The  obligation  to  report  irregularities  in  the  area  of  pre-accession  assistance  is 
established  in  the  Financing  Agreements/Memoranda  signed  between  the  acceding 
countries,  Candidate  countries  and  the  European  Community/Union  and  is  in 
accordance  with  the  provisions  of  Commission  Regulation  (EC)  1681/19949  and 
1828/200610.  This  obligation  is  yet  enhanced  by  the  Commission  decision  granting 
conferral of management on extended decentralised basis (EDIS). 

1.1.1.  The reporting obligation 

Member States shall report to the EC any irregularities which have been the subject 
of a primary administrative or judicial finding, within two months following the end 
of each quarter. Therefore, the reporting period is divided in four quarters the last of 
which has as deadline the end of February of the following year11.  

The  first  communication  of  a  case  of  irregularity  is  also  known  as  ‘Initial 
Communication’ 

The information to be submitted concerns, among others: 

(1) 

(2) 

(3) 

(4) 

The identification of the operation or budget line (for agriculture) affected by 
the irregularity; 

The detection method and the modus operandi; 

The financial impact of the irregularity; 

The natural and legal persons having committed the irregularity. 

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Commission  Regulation  (EC)  No  1828/2006  of  8  December  2006  setting  out  rules  for  the 
implementation  of  Council  Regulation  (EC)  No  1083/2006  laying  down  general  provisions  on  the 
European  Regional  Development  Fund,  the  European  Social  Fund  and  the  Cohesion  Fund  and  of 
Regulation  (EC)  No  1080/2006  of  the  European  Parliament  and  of  the  Council  on  the  European 
Regional  Development  Fund,  OJ  L  371,  27.12.2006.  This  repeals  Regulations  (EC)  No  1681/94  and 
(EC) No 1831/94. Commission Regulation (EC) No 498/2007 of 26 March 2007 laying down detailed 
rules  for  the  implementation  of  Council  Regulation  (EC)  No  1198/2006  on  the  European  Fisheries 
Fund.  
Regulation (EC) No 1080/2006 of the European Parliament and of the Council of 5 July 2006 on the 
European Regional Development Fund and repealing Regulation (EC) No 1783/1999; Regulation (EC) 
No 1081/2006 of the European Parliament and of the Council of 5 July 2006 on the European Social 
Fund and repealing Regulation (EC) No 1784/1999; Council Regulation (EC) No 1083/2006 of 11 July 
2006  laying  down  general  provisions  on  the  European  Regional  Development  Fund,  the  European 
Social Fund and the Cohesion Fund and repealing Regulation (EC) No 1260/1999; Council Regulation 
(EC) No 1084/2006 of 11 July 2006 establishing a Cohesion Fund and repealing Regulation (EC) No 
1164/94, OJ L 210, 31.7.2006. 
As amended by Regulation (EC) No 2035/2005 
As amended by Regulation (EC) No 846/2009 
For  the  Agriculture  sector,  however,  the  financial  year,  which  is  also  taken  as  a  reference  for  the 
analysis of reported irregularities, runs from October 15 to October 14 of the following year. 

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Member States can differ to a subsequent updating communication the integration of 
the  information  of  which  they  do  not  dispose  at  the  moment  of  the  initial 
communication. 

Updating communications provide relevant information about the administrative and 
judicial  follow-up  of  the  irregularities.  In  the  areas  of  Cohesion  and  Pre-Accession 
information about financial follow-up has to be provided for irregularities related to 
previous programming periods (until 2000-2006 included)12. 

The reporting of irregularities shall happen by electronic means, using the modules 
provided  by  the  EC  (see  chapter  4  of  this  document  about  the  electronic  reporting 
systems). 

In certain sectors, namely Cohesion Policy and Pre-accession, financial information 
has to be expressed in Euro by countries which have not adopted it as their currency. 

1.1.2.  Derogations to the reporting obligation 

As a general rule, where the irregularities relate to amounts of less than EUR 10 000 
chargeable to the general budget of the EU, Member States shall not send the EC the 
irregularity communication, unless the Commission expressly requests it. 

Further  specific  derogations  to  the  reporting  obligation  are  foreseen  in  the  areas  of 
Agriculture, Cohesion and Pre-accession policies. More concretely, cases should not 
be reported: 

–  where the irregularity consists solely of the failure to partially or totally execute a 
(co-)financed  operation  owing  to  the  bankruptcy  of  the  final  beneficiary  or  the 
final  recipient;  however,  irregularities  preceding  a  bankruptcy  and  cases  of 
suspected fraud must be reported, 

–  if the case has been already brought to the attention of the administrative authority 
by the final beneficiary or the final recipient voluntarily and before detection by 
the  relevant  authority,  whether  before  or  after  the  payment  of  the  public 
contribution, 

–  where the administrative authority finds a mistake regarding the eligibility of the 
financed  expenditure  and  corrects  the  mistake  prior  to  payment  of  the  public 
contribution. 

1.2. 

Implementation of the Reporting Obligation 

The  practices  of  the  national  administrations  still  vary,  though  improvements  have 
been  achieved  thanks  to  the  efforts  made  to  harmonise  their  approaches.  The  data 
communicated  by  Member  States  is  sometimes  incomplete.  Furthermore,  the 
distinction  between  “suspected  fraud”  and  other  irregularities  is  not  consistent  as 
Member  States  do  not  always  have  the  same  definition  of  criminal  risk. 

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Regulation (EC) No 846/2009 has simplified the reporting obligation specified in Regulation (EC) No 
1828/2006. 

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Consequently, a certain proportion of communications received by the Commission 
does not distinguish between suspected fraud and irregularity. 

The Commission works in close cooperation with the Member States to improve the 
notification system for irregularities, in particular to clarify the concepts of “fraud” 
and “irregularity”13 and as a result, some measures of the possible economic impact 
of fraud in certain sectors have been made. 

13 

The  Commission  opened  a  dialogue  with  the  representatives  of  the  Member  States  to  clarify  basic 
concepts and to re-assure Member States that the communication of irregularities in no way prejudices 
the outcome of criminal judicial proceedings. A working document on the practical modalities for the 
communication of irregularities was established in 2002 and is currently under revision. Discussions are 
continuing in the Advisory Committee on the Coordination of Fraud Prevention. 

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2. 

DEFINITIONS 

For  the  purposes  of  this  document,  two  sets  of  definitions  are  used.  The  first  set 
refers  to  legal  definitions,  the  second  to  specific  indicators  used  throughout  the 
different chapters. 

2.1. 

Legal definitions 

2.1.1. 

Irregularity 

Irregularity: means any infringement of a provision of European law resulting from 
an act or omission by an economic operator which has, or would have, the effect of 
prejudicing  the  general  budget  of  the  European  Union  or  budgets  managed  by  it, 
either by reducing or losing revenue accruing from own resources collected directly 
on behalf of the Union, or by an unjustified item of expenditure14. 

2.1.2.  Fraud 

Fraud: affecting the European Communities' financial interests shall consist of15: 

a) in respect of expenditure, any intentional act or omission relating to: 

–  the use or presentation of false, incorrect or incomplete statements or documents, 
which has as its effect the misappropriation or wrongful retention of funds from 
the  general  budget  of  the  European  Communities  or  budgets  managed  by,  or  on 
behalf of, the European Communities; 

–  non-disclosure of information in violation of a specific obligation, with the same 

effect; 

–  the  misapplication  of  such  funds  for  purposes  other  than  those  for  which  they 

were originally granted; 

b) in respect of revenue, any intentional act or omission relating to: 

–  the use or presentation of false, incorrect or incomplete statements or documents, 
which has as its effect the illegal diminution of the resources of the general budget 
of  the  European  Communities  or  budgets  managed  by,  or  on  behalf  of,  the 
European Communities; 

–  non-disclosure of information in violation of a specific obligation, with the same 

effect; 

–  misapplication of a legally obtained benefit, with the same effect.” 

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15 

Article 2 of Regulation (EC) No 2988/95. 
Article  1(1),  point  (a),  of  the  "Convention  on  the  Protection  of  the  European  Communities'  Financial 
Interests" (PIF Convention). 

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National  legislations  contain  several  provisions  that  describe  the  conducts  and  the 
related  penalties  and  sanctions.  Some  of  these  provisions  are  the  result  of  the 
implementation of the PIF Convention into the national legal system. 

The  two  definitions  indicated  above  seem  similar  as  both  refer  to  “acts  or 
omissions”.  In  fact,  the  concept  of  irregularity  is  much  wider  than  that  of  fraud. 
Fraud explicitly refers to “intentional” act or omission. In this respect, the concept of 
irregularity includes that of fraud, but refers also to a whole series of infringements 
of rules which do not imply a deliberate intent to violate or for which such intent is 
not  clear  (for  instance  a  breach  of  rules  due  to  the  misinterpretation  of  certain 
provisions because of their complexity). 

Therefore, the distinction between irregularities and fraud is that fraud is a criminal 
act that can only be determined by the outcome of judicial proceedings. As such, it 
occurs only when the judicial procedure has come to an end that the actual amount of 
fraud can be determined. While awaiting these results, the Commission works on the 
basis of the information supplied by Member States concerning cases of irregularities 
some of which, in the opinion of the reporting Member States, give rise to suspicions 
of  fraud.  The  Commission's  statistical  assessment  of  and  ability  to  respond  to, 
irregularities are influenced by the accuracy and timeliness of the notifications made 
by the Member States. 

2.1.3. 

Suspected fraud 

Suspected  fraud16:  means  an 
initiation  of 
administrative  and/or  judicial  proceedings  at  national  level  in  order  to  establish  the 
presence of intentional behaviour, in particular fraud, such as is referred to in Article 
1(1), point (a), of the PIF Convention. 

irregularity  giving  rise 

the 

to 

In their communications of irregularity to the Commission, Member States have been 
requested  to  indicate  whether  a  reported  irregularity  can  be  regarded  as  'suspected 
fraud'.  This  notion  was  introduced  in  order  to  provide  some  data  for  statistical 
purposes and to avoid the necessity of waiting until the end of criminal procedures 
for a final indictment. 

2.2. 

Definitions applied in the analysis 

However, it is to be noted that for the purpose of greater clarity, in the analysis and in 
the indicatorts only two broad categories of irregularity are applied: 

'Irregularities  reported  as  fraudulent'  are  those  irregularities  for  which  the 
fraudulent nature is suspected or established, also including those irregularities which 
Member States have not reported as fraudulent, but whose fraudulent nature could be 
derived on the basis of the analysis of the information17. 

16 

17 

This  definition  has  been  introduced  in  Commission  Regulation  (EC)  No  2035/2005.  It  has  been 
"confirmed"  in  Regulation  (EC)  No  1828/2006  for  the  Programming  Period  2007-2013  and  in 
Regulation (EC) No 1848/2006 for the agriculture sector. 
For  instance  whether  the  description  of  the  modus  operandi  is  related  to  the  use  of  false  or  falsified 
documents, certificates, declarations or when the information indicates that a criminal investigation or 

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'Irregularities  not  reported  as  fraudulent'  are  any  other  type  of  reported 
irregularities, for which fraudulent nature has not been ascertained. 

2.3. 

Indicators 

2.3.1. 

Irregularity and Fraud Rates 

The Irregularity Rate (IrR) is calculated using Equation 2-1 below: 

Equation Error! No text of specified style in document.-1: Irregularity Rate 

The  Net-Irregularity  Rate  (Net-IrR)  is  calculated  in  the  same  way  as  the  IrR,  but 
using  exclusively  the  'irregularities  not  reported  as  fraudulent',  as  described  in 
equation 2-2 below. 

Equation Error! No text of specified style in document.-2: Net-Irregularity Rate 

The Fraud Rate (FrR) is calculated using Equation 2-3 below: 

Equation Error! No text of specified style in document.-3: Fraud Rate 

The IrR, Net-IrR and FrR can be calculated by financial year (as in the case of the 
Agriculture sector) or on the entire Programming Period (as in the case of Structural 
Funds) and by Member State. The FrR is calculated using amounts linked to cases of 
suspected and established fraud18. 

18 

proceeding  is  under  way;  such  irregularities  include  therefore  those  detected  by  the  Commission 
(OLAF). 
These rates and the following levels had already been introduced in the 2008 Report and Commission 
Staff  Working  Paper  “Statistical  Evaluation  of  Irregularities”  with  similar  names.  This  year’s 
Commission  Staff  Working  Paper  “Statistical  Evaluation  of  Irregularities”  defines  precisely  these 
concepts  in  order  to  use  them  in  the  years  to  come.  In  other  parts  of  the  Commission  Staff  Working 
Paper “Statistical Evaluation of Irregularities” or in the Report itself, the Fraud Rate may be referred to 
also as Suspected Fraud Rate. The calculation method remains the same. In the 2008 report the same 
concept was identified as “suspected fraud rate” or “estimated fraud rate”. 

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2.3.2.  Fraud Frequency and Fraud Amounts Levels 

The  Fraud  Frequency  Level  (FFL)  represents  the  percentage  of  cases  qualified  as 
suspected frauds on the total number of reported irregularities and is calculated using 
Equation 2-4 below. 

Equation Error! No text of specified style in document.-4: Fraud Frequency Level 

The  Fraud  Amounts  Level  (FAL)  represents  the  percentage  of  financial  amounts 
involved  in  cases  qualified  as  suspected  frauds  on  the  total  reported  financial 
amounts affected by irregularities and it is calculated using Equation 2-5 below. 

Equation Error! No text of specified style in document.-5: Fraud Amounts Level 

FFL and FAL can be calculated by financial year (as in the case of the Agriculture 
sector) or on an entire Programming Period (as in the case of Structural Funds) and 
by Member State. 

3. 

ELECTRONIC REPORTING SYSTEMS 

Two main systems are in place for the reporting of irregularities to the Commission: 
Own Resources (OWNRES) managed by the Directorate General for Budget and the 
Irregularity Management System (IMS) managed by the European Anti-Fraud Office 
(OLAF). For the chapter dedicated to ‘Direct expenditure’, data come from a specific 
functionality of the ABAC (Accrual Based Accounting) system of the Commission. 

3.1. 

Commission Own Resources (OWNRES) 

Under  Article  6(5)  of  Regulation  No  1150/2000,  Member  States  are  required  to 
communicate  to  the  Commission,  via  the  OWNRES  system,  cases  of  fraud  and 
irregularity, if the TOR amount exceeds EUR 10 000. 

The OWNRES database is a key tool for obtaining data for global analyses of fraud 
and irregularities, and presents valuable information to the Budgetary Authority. 

3.1.1.  Monitoring of establishment and recovery of TOR 

In  its  capacity  as  Authorising  Officer  responsible  for  executing  the  EU  budget,  the 
Commission  (DG  Budget  is  the  delegated  Authorising  Officer)  monitors  the 
establishment  and  recovery  of  TOR  by  Member  States  in  various  ways.  The 

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monitoring  is  carried  out  in  partnership  with  different  Commission  departments, 
including OLAF. 

To this end, the following three methods are used: 

(1) 

(2) 

(3) 

Overall monitoring of recovery of TOR via the write-off procedure; 

Regular  inspection  in  Member  States  of  the  establishment  and  recovery  of 
TOR and B-account entries; 

Specific monitoring (in close cooperation with OLAF, DG TAXUD and DG 
AGRI)  of  Member  States’  follow-up  of  recovery  in  individual  cases,  which 
have a significant financial impact and usually involve Mutual Administrative 
Assistance. 

Given the Budgetary Authority’s particular interest in recovery, reliable information 
must be entered in OWNRES regarding the number of cases of irregularity and fraud 
and  their  development.  Member  States  have  a  special  responsibility  to  ensure  that 
appropriate  statistical  information  on  irregularity  and  fraud  is  provided  to  the 
Commission. 

Member States are responsible for making TOR available to the Commission within 
the  deadlines  set  they  have  established.  Established  amounts  of  customs  or 
agricultural duties that have been recovered, and debts, that are guaranteed and not 
under  appeal,  are  to  be  made  available  via  the  A-account.  However,  if  TOR  have 
been established by a Member State but not yet recovered and if no security has been 
provided or the secured amount has been disputed,  Member States may enter these 
TOR amounts in the B-account. These amounts of TOR are not made available until 
actually recovered. Most fraud and irregularity cases relate to B-account items. 

In  order  to  get  the  right  picture  of  Member  States’  TOR  recovery  activity,  it  is 
important  to  keep  in  mind  that  over  97%  of  all  amounts  of  TOR  established  are 
subsequently  recovered  without  any  particular  problem.  These  amounts  are  entered 
in  the  A-account  and  made  available  to  the  Commission.  This  covers  most  of  the 
‘normal’ import flows where release for free circulation gives rise to a customs debt. 
The  remaining  exceptional  items  are  entered  in  the  B-account.  Since  all  TOR 
amounts  exceeding  €10  000  in  the  B-account  normally  represent  an  irregularity 
(fraud  included)  by  definition,  therefore  the  match  between  the  two  -  from  the 
standpoint of the B-account - should be 100%19 . Cross-checks are carried out on a 
regular basis during the Commission inspections in the Member States. 

In return for their collection task, and to support sound and efficient management of 
public finances, Member States may keep 25% of the amounts recovered. 

19 

Items registered in OWNRES are not necessarily also in the B-account. If a debt has been paid or not 
established  (for  instance  where  goods  have  been  seized  and  confiscated),  the  amounts  should  not  be 
entered in the B-account. 

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3.1.2.  Procedure for managing Member States’ reports for write-off 

Member States must take all requisite measures to ensure that established amounts of 
TOR are made available to the Commission. This requirement, mentioned in Article 
17(1) of Regulation No 1150/2000, also implies that a Member State is only released 
from  its  obligation  to  make  available  TOR  if  it  can  prove  that  the  debt  is 
irrecoverable either: 

(1) 

(2) 

for reasons of force majeure; or 

for other reasons, which cannot be attributed to that Member State. 

There  are  two  ways  to  conclude  that  amounts  of  TOR  have  become  irrecoverable. 
The first is by a decision of a Member State declaring that they cannot be recovered 
—  this  declaration  may  be  made  at  any  time.  However,  TOR  must  be  deemed 
irrecoverable by a Member State at the latest five years from the date on which the 
debt was established, or in the event of an administrative or judicial appeal, the final 
decision was given, or the last part-payment to the debt was made, whichever is the 
later. If the amount of the written-off debt is less than EUR 50 000, Member States 
do  not  have  to  communicate  the  case  to  the  Commission,  unless  the  Commission 
makes  a  specific  request.  However,  if  the  irrecoverable  amount  of  TOR  exceeds 
EUR 50 000, the write-off must be reported to the Commission which has to decide 
whether  the  necessary  conditions  are  fulfilled  in  order  to  release  the  Member  State 
from the obligation to make the TOR available. 

Member States submit their requests to be released from the obligation to make the 
TOR available directly via an IT  application  called  WOMIS20  .  In  2011  a  WOMIS 
version 2.0 was released.  

3.1.3.  Particular cases of Member State failure to recover TOR  

If TOR are not established because of an administrative error by a Member State, the 
Commission applies the principle of financial liability21. The main objective of these 
procedures is to encourage individual Member States to improve their administrative 
performance and to address weaknesses leading to a loss of TOR. Payments for these 
cases are made available via the A-account and they reduce in effect the contribution 
of the Member States via the GNI resource in proportion to their contribution to the 
EU budget. 

3.1.4.  Detection of fraud and irregularity 

Cases should be included in OWNRES upon the initial discovery of the irregularity 
or fraud case. As a result the year of the customs operation and the year of discovery 
of  the  irregularity  or  fraud  can  diverge.  Member  States  are  continually  adding  new 

20 
21 

WOMIS: Write-Off Management and Information System 
Case  C-392/02  of  15  November  2005.  These  cases  are  identified  on  the  basis  of  Articles  220(2)(b) 
(administrative errors which could not reasonably have been detected by the person liable for payment) 
and 221(3) (time-barring resulting from Customs’ inactivity) of the Community Customs Code, Articles 
869  and  889  of  the  Provisions  for  application  of  the  Code,  or  on  the  basis  of  non-observance  by  the 
customs  administration  of  Articles  of  the  Community  Customs  Code  giving  rise  to  legitimate 
expectations on the part of an operator. 

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cases  and  updating  existing  items.  So  the  information  generated  by  OWNRES 
represents  the  situation  on  the  date  of  the  query.  This  continuing  development  is 
inherent to the system. 

According  to  OWNRES  the  moment  of  discovery  is  an  indicator  for  classifying  a 
case  as  fraud,  since  primary  inspections  more  often  result  in  classifying  cases  as 
fraud than post-clearance inspections. 

The  distinction  in  OWNRES  between  fraud  and  irregularity  might  not  be  fully 
comparable between different Member States. In their reports Member States make 
this distinction usually on subjective grounds and before any court judgment is given. 
Such  subjective  grounds  vary  between  national  administrations  depending  on  their 
national practises and legislation. 

3.2. 

Irregularity Management System (IMS) 

3.2.1.  The national structures and users 

According to their competencies and responsibilities national authorities have access 
to the module(s) which is(are) relevant for them. IMS flexibility allows a cascading 
system to be set up: national organisations can be arranged in a hierarchical structure 
with  different  levels  of  responsibility,  in  which  the  superior  level  approves  the 
communication prepared by the inferior and forwards it to the next level or to OLAF. 
Within  each  organisation,  users  can  receive  different  roles  such  as  creator  (creates 
the communication of irregularity), manager (validates it and forwards it to the next 
level) and observer (read-only access). 

IMS is a web based application that can be accessed directly via internet therefore it 
does not only support the needs of the organisations to structure the reporting task, 
but  also  introduces  an  extended  accessibility  to  the  system.  This  has  led  to  an 
enormous  increase  in  the  number  of  users  compared  to  the  previous  electronic 
reporting system. 

3.2.2.  The modules 

The  Irregularity  Management  System  (IMS)  is  an  application  of  the  Anti-Fraud 
Information  System  (AFIS),  developed  and  maintained  by  OLAF  for  a  secure 
exchange of information between Member States and the Commission. 

IMS  is  a  complex  application  divided  in  several  modules  which  enable  Member 
States  to  report  cases  of  irregularities  and  (suspected)  fraud  under  the  different 
sectoral  legislations  mentioned  in  chapter  2.  The  modules  are  named  after  the 
corresponding  Regulation,  with  the  exception  of  the  two  modules  related  to  Pre-
Accession Assistance. 

Figure  3-1  summarises  the  architecture  of  IMS  and  distinguishes  between  modules 
under  development  (framed  by  a  dotted  line)  and  modules  currently  operational 
(framed by a continuous line). 

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Figure Error! No text of specified style in document.-1: IMS architecture 

3.2.3.  Data input and data quality 

The  different  modules  of  IMS  offer  the  users  the  possibility  of  submitting  the 
information  requested  by  the  sectoral  regulations  in  a  structured  manner.  The 
different  fields  are  grouped  in  pages  according  to  'subjects'  and  users  are  assisted 
through the possibility of choosing from pre-defined selection lists. 

Communications of irregularity can also be imported into the system using excel or 
xml files structured according to specific templates. 

Information  considered  to  be  essential  are  treated  as  mandatory,  meaning  that  a 
communication  cannot  be  successfully  finalised  and  transmitted  without  it.  Other 
‘business rules’ provide warnings or produce errors if the user does not fill correctly 
the requested data. 

Data quality checks are also provided by the different levels of the reporting structure 
and by OLAF. 

The ‘Initial Communication’ and its ‘Updating Communication(s)’ form a ‘Case’. 

3.2.4.  Data analysis – cases of irregularity and (suspected) fraud 

The analyses are based on the cases of irregularities and (suspected) fraud gathered 
through  the  tools  described  above.  The  extent  to  which  those  systems  are 

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implemented  and  used  correctly  influences  the  accuracy  and  completeness  of  the 
analytical results. 

As  already  mentioned  before,  in  their  communications  of  irregularity  to  the 
Commission,  Member  States  have  been  requested  to  indicate  whether  a  reported 
irregularity can be regarded as 'suspected fraud'. This action is performed in IMS by 
filling  a  specific  field  (which  is  mandatory  in  all  modules  except  module  1848) 
which allows classifying any case under three possible categories: (a) irregularity; (b) 
suspected  fraud;  (c)  established  fraud.  Therefore,  all  Member  States  having 
implemented IMS specify the requested information. 

The  analysis  of  this  information,  however,  has  revealed  that  a  number  of 
inconsistencies  are  still  present.  Namely,  the  classification  provided  by  national 
authorities  can  be  contradictory  with  other  data  given  in  the  same  communication, 
for instance the description of the types of irregularities committed and the judicial 
follow-up undertaken. 

In  particular,  the  inconsistencies  appear  evident  in  the  presence  of  the  following 
information: 

(1) 

(2) 

the  case  is  classified  as  'irregularity',  but  it  is  also  indicated  that  penal 
proceedings have been initiated; 

the case is classified as 'irregularity', but one or more of the modus operandi 
described in Table 3-1 are indicated. 

Table Error! No text of specified style in document.-1: List of modus operandi conflicting 
with the classification ‘irregularity’ 

IMS 
CODE

DESCRIPTION

103 Falsified Accounts 
208 False or Falsified Request for Aid 
213 Falsified Supporting Documents 
214 False or Falsified Certificates 
402 Non Existent Operator 
608 Refusal of Control 
818 Falsified Declaration 
850 Corruption 
851 Abuse 

ARTICLE OF THE 
CONVENTION
Art. 1(a) first alinea
Art. 1(a) first alinea
Art. 1(a) first alinea
Art. 1(a) first alinea
Art. 1(a) first alinea
Art. 1(a) second alinea
Art. 1(a) first alinea
Protocol
Protocol

For the purposes of the analyses in presence of one of the two conditions mentioned 
above, the case falls in the category 'irregularity qualified as fraudulent' even in the 
absence of an explicite 'suspected fraud' classification by the national authorities. 

3.2.5. 

Impact of IMS on irregularity reporting 

The  introduction  and  successful  implementation  of  IMS  has  produced  a  number  of 
consequences  on  the  reporting  behaviour  and  practise  of  Member  States.  Those 
countries which have adopted the system have  

(1) 

rationalised  the  distribution  of  the  workload  related  to  the  reporting 
obligation: in the past, level 2 or 3 was filling a paper form and transmitting it 

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to  level  1,  which  had  the  task  to  perform  a  quality  check  and  to  submit  the 
form  to  the  Commission,  on  paper  or  electronically.  If  the  communication 
was  forwarded  on  paper,  someone  in  OLAF  was  keying  in  the  information 
into the irregularities database. This duplication of tasks was at the origin of 
several clerical mistakes;  

(2) 

accelerated  the  reporting  process.  The  decentralisation  of  the  reporting  task 
through  the  same  system  allows  more  users  to  prepare,  at  the  same  time,  a 
greater number of communications. The “superior” levels are freed from the 
“filling”  of  communications  and  can,  therefore,  concentrate  on  data  quality 
and process the irregularities in a faster way. This acceleration is possibly the 
source for an increased number of reported irregularities in the first years of 
implementation of the IMS; 

(3) 

improved the completeness and overall quality of the communications, thanks 
to the mandatory fields and the “consistency rules” foreseen by the system. 

3.3. 

Accrual Based Accounting System (ABAC) 

The ABAC system is a transversal, transactional information system that allows the 
execution  and  monitoring  of  all  budgetary  and  accounting  operations  by  the 
Commission. The system was developed by the Commission to facilitate compliance 
with the requirements of the Financial Regulation and its implementing rules. 

One  of  the  functionalities  of  the  ABAC  system  is  the  ‘Recovery  Context’,  which 
gathers detailed information on recovery orders issued by the Commission services 
and registered in ABAC. Financial officers have to indicate for each recovery order 
whether  it  relates  to  an  error,  an  irregularity  or  a  suspected  fraud  that  has  been 
identified  in  the  implementation  of  a  grant  agreement  or  contract.  In  case  the 
recovery  order  is  qualified  as  'suspected  fraud',  OLAF  has  to  be  notified.  For  each 
recovery order, information is given on the method of detection as well as the type of 
irregularity or suspected fraud that constitutes the basis for the recovery. 

For the financial analyses, the following data were used from ABAC: 

(1) 

(2) 

The number and corresponding financial amounts of recovery orders, which 
were  registered  after  validation  by  the  authorising  officer,  including 
information  on  the  place  of  residence  of  the  contract  partner  of  the 
Commission and the budget line concerned; the method of detection; the type 
of irregularity identified and the time span between the approval of a budget 
commitment,  the  notification  of  a  recovery  order  and  the  return  payment  of 
the undue funds to the Commission; 

Given  the  fact  that  recovery  orders  might  relate  to  commitments  from 
different budget lines and even from different financial years. Therefore, as a 
reference figure the number of commitments made in financial year 2011 and 
the related consumption amounts have been applied. This can serve a better 
comparison of committed (and payed) amounts and recovery amounts. Only 
commitments related to the budget headings and/or place of residence of the 
contract partner of the Commission that appeared in the recovery orders were 
taken  into  account.  Amounts  for  administrative  expenditure  as  well  as  the 
legal entity “institutions européennes” were excluded from the analysis. 

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Table  3-2  and  Table  3-3  list  the  different  methods  of  detection  and  types  of 
irregularity respectively. 

Table Error! No text of specified style in document.-2: List of methods of detection 

METHOD OF DETECTION

Community control / Check on the spot
Community control / Desk check documents
Control by national authorities
European Court of Auditors
Independent control (supervising engineers, auditors)
OLAF
Other

Table Error! No text of specified style in document.-3: List of types of ‘irregularity’ 

TYPE OF IRREGULARITY

Action not implemented
Action not in accordance with the rules
Action not used for intended purposes
Advances not correctly reflected
Beneficiary ineligible
Calculation error
Deadline not respected
Expenditure declared not related to the action
Expenditure not covered by legal base
Falsified documents
Inappropriate accumulation of aid
Incomplete documents
Incorrect rates used in calculating the claim
Lack of necessary co-financing
Missing documents
Not Applicable
Public procurement procedures not respected
Quality of action inadequat
Recoverable VAT, interest received not correctly reflected

The recovery context is a relatively new functionality within ABAC. The collection 
of  data  from  the  Commission  services  only  started  recently  and  the  current  data 
available  in  ABAC  refer  to  recovery  orders  issued  since  2008.  This  first  exercise 
conducted  in  2008  revealed  a  number  of  practical  problems,  which  are  related  to 
different  interpretations  throughout  the  Commission  of  definitions  used  in  ABAC; 
the  omission  of  certain  information  in  the  'Recovery  Context'  and  the  link  of  the 
information  with  other  data  in  ABAC.  The  Commission  has  tried  to  diminish  the 
impact of these shortcomings to provide more accurate analysis of the irregularities 
in  expenditures  managed  directly  by  the  Commission.  Nevertheless,  the  limitations 
of  the  data  have  not  been  removed  completely  and  they  might  still  influence  the 
analysis. 

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