COMMISSION STAFF WORKING DOCUMENT Statistical evaluation of irregularities reported for 2013 Own Resources, Natural Resources, Cohesion Policy, Pre-accession and Direct expenditure Accompanying the document REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Protection of the European Union's financial interests - Fight against Fraud Annual Report 2013
Date: 2014-07-17
Institutions: European Commission
Subjects: European Anti-fraud Office, customs fraud, economic and social cohesion, fraud against the EU, general budget (EU), natural resources, own resources, pre-accession strategy, statistics, tax evasion













EUR-Lex - 52014SC0244 - EN











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52014SC0244

COMMISSION STAFF WORKING DOCUMENT Statistical evaluation of irregularities reported for 2013 Own Resources, Natural Resources, Cohesion Policy, Pre-accession and Direct expenditure Accompanying the document REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Protection of the European Union's financial interests - Fight against Fraud Annual Report 2013 /* SWD/2014/0244 final */









TABLE OF
CONTENTS
COMMISSION STAFF WORKING DOCUMENT Statistical evaluation of
irregularities reported for 2013 Own Resources, Natural Resources, Cohesion
Policy, Pre-accession and Direct expenditure
LIST OF ABBREVIATIONS................................................................................................... 9
1........... Introduction................................................................................................................ 11
1.1........ Scope of the document............................................................................................... 11
1.2........ Structure of the document.......................................................................................... 11
Part I - REVENUES................................................................................................................. 12
2........... Traditional Own Resources........................................................................................ 12
2.1........ Introduction................................................................................................................ 12
2.2........ General analysis – Trend analysis............................................................................... 12
2.2.1..... Reporting Years 2008-2013: Cases
of fraud and irregularities.................................. 12
2.2.1.1.. Irregularities reported as
fraudulent........................................................................... 13
2.2.1.2.. Irregularities not reported as
fraudulent..................................................................... 14
2.2.2..... Established and estimated amounts............................................................................ 15
2.2.3..... Recovery..................................................................................................................... 16
2.2.3.1.. Recovery rates............................................................................................................ 17
2.3........ Specific analysis.......................................................................................................... 17
2.3.1..... Irregularities reported as
fraudulent........................................................................... 17
2.3.1.1.. Modus operandi.......................................................................................................... 17
2.3.1.2.. Method of detection of fraud cases........................................................................... 18
2.3.1.3.. Smuggled cigarettes.................................................................................................... 19
2.3.1.4.. Fraud cases by amount category................................................................................. 20
2.3.2..... Irregularities not reported as
fraudulent..................................................................... 20
2.3.2.1.. Modus operandi.......................................................................................................... 20
2.3.2.2.. Method of detection of irregularity
cases................................................................... 20
2.3.2.3.. Non-fraudulent irregularities by
amount category...................................................... 22
2.4........ Member States’ activities............................................................................................ 22
2.4.1..... Member States’ classification of
cases of fraud and other irregularities and related rates  22
2.4.2..... Recovery rates............................................................................................................ 23
2.4.2.1.. Fraud........................................................................................................................... 23
2.4.2.2.. Other Irregularities...................................................................................................... 23
2.4.2.3.. Historical recovery rate............................................................................................... 24
2.4.3..... Commission’s monitoring........................................................................................... 24
2.4.3.1.. Examination of the write off
reports.......................................................................... 24
2.4.3.2.. Commission’s inspections........................................................................................... 24
2.4.3.3.. Particular cases of Member State failure to recover TOR.......................................... 25
Part II - EXPENDITURE........................................................................................................ 26
Section I - Shared Management................................................................................................ 26
Natural Resources..................................................................................................................... 26
3........... Common Agricultural Policy (CAP)........................................................................... 26
3.1........ Introduction................................................................................................................ 26
3.2........ General analysis – Trend analysis............................................................................... 27
3.2.1..... Irregularities reported as
fraudulent........................................................................... 27
3.2.2..... Irregularities not reported as
fraudulent..................................................................... 29
3.3........ Specific analysis.......................................................................................................... 31
3.3.1..... Irregularities reported as
fraudulent........................................................................... 31
3.3.1.1.. Modus operandi.......................................................................................................... 31
3.3.1.2.. Type of control / Method of
detection....................................................................... 33
3.3.1.3.. Complexity of the irregularities
reported as fraudulent.............................................. 36
3.4........ Anti-fraud activities of Member
States...................................................................... 37
3.4.1..... Detection – Reporting Efficiency............................................................................... 37
3.4.2..... Detection of irregularities
reported as fraudulent in 2012 by Member State............. 39
3.4.3..... Fraud detection rate.................................................................................................... 40
3.4.4..... Ratio of established fraud
2009-2013........................................................................ 41
3.5........ Recovery cases............................................................................................................ 43
3.5.1..... Legal Framework........................................................................................................ 43
3.5.2..... Amounts recovered in 2013........................................................................................ 43
3.5.3..... Application of the 50/50 Rule.................................................................................... 44
3.5.4..... Commission’s Audits.................................................................................................. 46
4........... Common Fisheries Policy (CFP)................................................................................. 47
4.1........ General analysis.......................................................................................................... 47
4.2........ Specific analysis.......................................................................................................... 48
4.2.1..... Types of irregularity detected..................................................................................... 48
4.2.2..... Method of detection................................................................................................... 48
4.3........ Control activity by Member States............................................................................. 48
Sustainable Growth................................................................................................................... 50
5........... Cohesion Policy.......................................................................................................... 50
5.1........ Trend analysis............................................................................................................. 51
5.1.1..... Irregularities reported as
fraudulent........................................................................... 51
5.1.1.1.. Trend by programming period.................................................................................... 51
5.1.1.2.. Trend by Fund............................................................................................................ 53
5.1.1.3.. Trend by objective...................................................................................................... 55
5.1.2..... Irregularities not reported as
fraudulent..................................................................... 57
5.2........ Specific Analysis – Irregularities
reported as fraudulent in relation to the Programming Period 2007-13  59
5.2.1..... Priorities concerned by the
irregularities reported as fraudulent in 2013................... 59
5.2.2..... Types of irregularities / modus
operandi detected - Irregularities reported as fraudulent in 2013  60
5.2.3..... Type of control / method of
detection – Irregularities reported as fraudulent........... 61
5.2.3.1.. Complexity of the irregularities
reported as fraudulent.............................................. 63
5.2.4..... Type of irregularities not
reported as fraudulent – 2008-2013................................... 64
5.3........ Anti-fraud activities by Member
States...................................................................... 64
5.3.1..... Detection – Reporting Efficiency............................................................................... 65
5.3.2..... Detection of irregularities
reported as fraudulent in 2013 by Member State............. 66
5.3.3..... Fraud detection rate.................................................................................................... 67
5.3.4..... Fraud Prevention Rate................................................................................................ 68
5.3.5..... Ratio of established fraud
2008-2012........................................................................ 69
Section II - Decentralised Management................................................................................... 71
The EU as a global player / Pre-Accession
Policy..................................................................... 71
6........... Pre-Accession Policy (Pre-Accession
Assistance and Instrument for Pre-Accession) 71
6.1........ The Pre-accession Assistance
(PAA), 2000-06 and Instrument for Pre-Accession (IPA), 2007-13            71
6.2........ General analysis – Trend analysis............................................................................... 74
6.2.1..... Trend analysis............................................................................................................. 74
6.2.2..... Trend analysis IPA..................................................................................................... 75
6.2.3..... Reporting efforts........................................................................................................ 76
6.3........ Specific analysis – Financial
year 2013...................................................................... 76
6.3.1..... Pre-Accession Assistance (PAA)................................................................................ 76
6.3.2..... Instrument for Pre-Accession (IPA)........................................................................... 77
6.3.3..... Method of detection................................................................................................... 78
6.3.4..... Recovery for the Pre-Accession
Assistance (PAA).................................................... 79
Section III – Centralised
Management..................................................................................... 80
7........... Direct Management.................................................................................................... 80
7.1........ Introduction................................................................................................................ 80
7.2........ General analysis.......................................................................................................... 81
7.2.1..... Five year analysis 2009-2013...................................................................................... 81
7.3........ Specific analysis.......................................................................................................... 82
7.3.1..... Recoveries according policy areas.............................................................................. 82
7.3.2..... Recoveries according to legal
entity residence........................................................... 84
7.3.3..... Method of detection................................................................................................... 84
7.3.4..... Types of error.............................................................................................................. 85
7.3.5..... Time delay.................................................................................................................. 85
7.3.6..... Recovery..................................................................................................................... 86
COUNTRY FACTSHEETS..................................................................................................... 87
Belgium..................................................................................................................................... 88
Bulgaria..................................................................................................................................... 89
Czech Republic......................................................................................................................... 90
Denmark.................................................................................................................................... 91
Germany.................................................................................................................................... 92
Estonia...................................................................................................................................... 93
Ireland....................................................................................... Error! Bookmark not defined.
Greece....................................................................................................................................... 95
Spain......................................................................................................................................... 96
France........................................................................................................................................ 97
Croatia....................................................................................................................................... 98
Italy........................................................................................................................................... 99
Cyprus..................................................................................................................................... 100
Latvia...................................................................................................................................... 101
Lithuania................................................................................................................................. 102
Luxembourg............................................................................................................................ 103
Hungary.................................................................................................................................. 104
Malta....................................................................................................................................... 105
Netherlands............................................................................................................................. 106
Austria..................................................................................................................................... 107
Poland..................................................................................................................................... 108
Portugal................................................................................................................................... 109
Romania.................................................................................................................................. 110
Slovenia................................................................................................................................... 111
Slovakia................................................................................................................................... 112
Finland.................................................................................................................................... 113
Sweden................................................................................................................................... 114
United Kingdom..................................................................................................................... 115
ANNEXES............................................................................................................................. 116
ANNEX 1............................................................................................................................... 117
ANNEX 2............................................................................................................................... 118
ANNEX 3............................................................................................................................... 119
ANNEX 4............................................................................................................................... 120
ANNEX 5............................................................................................................................... 121
ANNEX 6............................................................................................................................... 122
ANNEX 7............................................................................................................................... 123
ANNEX 8............................................................................................................................... 124
ANNEX 9............................................................................................................................... 125
ANNEX 10............................................................................................................................. 126
ANNEXES 11-15................................................................................................................... 127
ANNEX 11............................................................................................................................. 128
ANNEX 12............................................................................................................................. 129
ANNEX 13............................................................................................................................. 130
ANNEX 15............................................................................................................................. 132
LIST OF
ABBREVIATIONS
 CAP || Common Agricultural Policy 
 CF || Cohesion Fund 
 CFP || Common Fishery Policy 
 CN || Combined Nomenclature (Customs) 
 CP || Cohesion Policy 
 DetE || Detection Efficiency 
 DG || Directorate General 
 EAFRD || European Agricultural Fund for Rural Development 
 EAGF || European Agricultural Guarantee Fund 
 EC || European Commission 
 EFF || European Fishery Fund 
 ER || Error Rate 
 ERDF || European Regional Development Fund 
 ESF || European Social Fund 
 EU || European Union 
 EU-10 || The ten Member States having acceded the EU in 2004 
 EU-12 || The twelve Member States having acceded the EU between 2004 and 2007 
 EU-15 || The fifteen Member States of the EU before the 2004 accession 
 EU-2 || Bulgaria and Romania 
 EU-27 || The 27 Member States before Croatian accession 
 EUR || Euro 
 FDR || Fraud Detection Rate 
 FFL || Fraud Frequency Level 
 GNI || Gross National Income 
 HRR || Historical Recovery Rate 
 NR || Natural Resources 
 OLAF || European Anti-Fraud Office (Office pour la Lutte Anti-Fraude) 
 OWNRES || Web application for communication of irregularities in the field of Traditional Own Resources 
 RepE || Reporting Efficiency 
 RR || Recovery Rate 
 SME || Small and Medium Sized Enterprise 
 TFEU || Treaty on the Functioning of the European Union 
 TOR || Traditional Own Resources 
1.           Introduction
1.1.        Scope
of the document
The present document[1] is based on the
analysis of the notifications provided by national authorities of cases of
irregularities and suspected or established fraud. The reporting is performed
in fulfilment of a legal obligation enshrined in sectoral European legislation.
The document accompanies the Annual Report
adopted on the basis of article 325 of the Treaty on the Functioning of the
European Union (TFEU), according to which “The Commission, in cooperation with
Member States, shall each year submit to the European Parliament and to the
Council a report on the measures taken for the implementation of this
article”.
For this reason, this document should be
regarded more as an analysis of the achievements of Member States.
The methodology (including the definition of
terms and indicators), the data sources and the data capture systems are
explained in detail in the Commission Staff Working Document – Methodology for
the Statistical Evaluation of Irregularities.
1.2.        Structure
of the document
The present document is divided in two parts. 
The first part is dedicated to the analysis of
irregularities reported in the area of the Traditional Own Resources
(Revenues). 
The second part, concerning the expenditure
part of the budget, is composed of three sections, dedicated, respectively, to
shared, decentralised and centralised management modes.
The section dedicated to shared management,
covers the natural resources (agriculture, rural development and fisheries) and
the cohesion policy. Decentralised management refers to the pre-accession
policy, while the centralised management section mainly deals with internal and
external policies for which the Commission directly manages the implementation.
The document is completed by 27 country
factsheets, which summarise, for each Member State, the main indicators and
information that have been recorded through the analyses.
15 Annexes complement the information and data
of this document, providing a global overview of the irregularities reported
according to the relevant sector regulations. Annexes from 1 to 10 concern
Traditional Own Resources, Annexes 11 and 12 Natural Resources and Annexes from
13 to 15 the Cohesion Policy.
Part I - REVENUES
2.           Traditional
Own Resources
2.1.        Introduction
For more information about how information
concerning irregularities and fraud related to Traditional Own Resources are
collected and analysed, see paragraph 1.3 of the Commission Staff Working
Document ‘Methodology’. 
Charts TOR1 –TOR4 provide an overview of the
number of cases of fraud and irregularities per reporting year, established
amounts and recovery rates as published in the previous years’ reports and to
compare them with the reporting trends observed for the 2008-2012 period.
The following analysis is based on the data
available on the cut-off date (7 April 2014) and aims to provide an overview of
the reported cases of fraud and irregularities reported for 2013 together with
their financial impact.
2.2.        General
analysis – Trend analysis
2.2.1.     Reporting
Years 2008-2013: Cases of fraud and irregularities
The number of cases reported via OWNRES for
2013 (4 777) is currently almost as high as the average number of cases of
fraud and irregularities reported for the 2008-2012 period (4 812).
The total established amount of TOR involved (EUR
380 million) is about 2 % higher than the average established amount for
years 2008-2012 (EUR 371 million).[2]
In 2013, two big cases[3] totalling to the amount
of EUR 29 million were reported comparing to 2012, when six big cases with a
total established amount of about EUR 104 million affected the total
established amount.
Chart TOR1: Total cases of fraud and
irregularities and amounts affected (2008-2013)
When the number of cases of fraud and
irregularity are compared with those published in the previous report, it
appears that there is a time gap between the detection of the cases and their
reporting via the OWNRES application. For 2012, there has been an increase in
the number of fraud and irregularity cases (totalling to 668) since the last
report. Although the efforts by Member States in constantly updating the information
on cases of fraud and irregularities is to be welcomed, the timely input of new
reports and updates should nevertheless be respected.
Annex 1 shows the situation on the cut-off date
(7 April 2014) for years 2008-2013.
2.2.1.1.  Irregularities
reported as fraudulent
The number of fraud cases registered in OWNRES
for 2013 (633) is currently 26 % lower than the average number of
fraud cases reported for the 2008-2012 period (851).
The total established amount of TOR involved (EUR
54 million) represents almost half of the average established amount for the
years 2008-2012 (EUR 100 million).[4]

For 2013, Estonia, Luxemburg, Slovakia and Sweden did not communicate any case of fraud exceeding an amount of EUR 10 000.
CHART TOR2: Cases of fraud and established
amounts (2008-2013)
On the cut-off date, only 13 % of all
cases detected in 2013 were classified as fraud, whereas the figure for 2008
was 22 %.[5]
Since 2008 this percentage has decreased (for cases detected after 2008).  It
is not clear whether this is due to a shift toward the detection of irregular cases or the way in which Member
States classify cases. Other possible reasons could be new fraud prevention
measures implemented in Member States to identify vulnerabilities, or Member
States might pursue financial interest without further
investigation of the potential criminal offence or Member States’ control
strategies would need to include more dynamic factors to better adjust to the
changing environment. Member States need to ensure that well targeted, risk
based customs controls are in place allowing effective detection of fraudulent
import operations.  
Annex 2 shows the situation on the cut-off date
for years 2008-2013.
2.2.1.2.  Irregularities
not reported as fraudulent
At the same time, the number of irregularities
communicated via OWNRES for 2013 (4 144) was 5 % higher than
the average number reported for 2008-2012 (3 962).
The total established amount of TOR (EUR 326
million) was 20 % higher than the average established amounts for the
years 2008-2012 (EUR 271 million).[6]
Greece, Luxemburg and Malta did not report any cases of irregularity exceeding an amount of EUR 10 000 for
2013.
CHART TOR3: Cases of non-fraudulent
irregularities and established amounts (2008-2013)
Annex 3 shows the situation on the cut-off date
for years 2008-2013.
2.2.2.     Established
and estimated amounts 
In 2013, the total established amount of TOR (gross)
was EUR 20.9 billion and the greater part of it (98 %) was recovered
without any particular problem and made available to the Commission via the
A-account. In comparison with the total amount established, according to the
OWNRES data, around EUR 388 million has been established and estimated
by the Member States in connection with detected cases of fraud and
irregularities where the amount at stake exceeds EUR 10 000.
The total established and estimated amounts
reported in OWNRES represent 1.86 % of the total established amount of TOR
(gross) for 2013.[7] This proportion has decreased compared with 2012 when it was 2.05 %.
A percentage of 1.86 % indicates that of every EUR 100 of TOR (gross)
established, an amount of EUR 1.86 is registered as irregular or fraudulent in
OWNRES. There are differences among the Member States. In 10 Member States, the
percentage is above the average of 1.86 %. The highest percentage for 2013
can be seen in Cyprus with 5.18 %. The proportion of established and
estimated OWNRES amounts to established TOR in 2013 compared to 2012 increased from
0 % to 3.75 % for Malta, from 0.61 % to 5.18 % for Cyprus
and from 0.4 % to 1.21 % for Estonia. For Romania, the proportion of established
and estimated OWNRES amounts to established TOR decreased in 2013 from 14.3 %
to 3.16 % compared to the previous year.
For the seven Member States which established
and made available most of the TOR amounts, the percentage of the established
and estimated OWNRES amounts to established TOR for 2013 was equal to 1.91 %.
In comparison with the previous year, this represents a decrease of 0.14
percentage points.
TOR MAP1: Showing the percentage of established and estimated
amounts in OWNRES of established TOR in 2013
2.2.3.     Recovery
The fraud and irregularity cases detected in
2013 show an established amount of EUR 380 million. EUR 221
million of this was recovered in cases where an irregularity was at issue and EUR 13 million in fraud cases. In total EUR 234 million was recovered by all Member
States for all cases which were detected in 2013. In absolute numbers, Germany recovered the highest amount in 2013 (EUR 85
million) followed by the United Kingdom (EUR 64 million). In addition, Member States continued their recovery
actions related to the detected cases of previous years. The EU-28 recovered EUR 130 million in 2013 which related to
cases detected between 1989 and 2012.
2.2.3.1.  Recovery
rates 
Over the past, five years the annual RR has
varied between 38 % and 52 % (see Chart TOR4)[8]. The recovery rate for
2013 is currently 62 %[9] which is the best
recovery result reported in the past decade. In other words, of every amount
over EUR 10 000 of duties established and reported for 2013 in OWNRES,
approximately EUR 6 200
has already been paid.
Since the overall recovery rate for 2012
recorded in the last year’s report has climbed from 47 % to 59 %, it
can be expected that the overall recovery rate for 2013 will also increase in
the future. On the cut-off date, the overall RR for all years 1989-2013 was 55 %.[10] 
CHART TOR4: Annual recovery rates 2008-2013
Recovery rates vary among the Member States. The
highest recovery rates for 2013 are in Estonia and Slovakia (100 %), Hungary (87 %),  Portugal (85 %), Sweden (84 %), Germany (80 %), Bulgaria, Slovenia and Finland (78 %). Differences in recovery results may arise from factors
such as the type of fraud or irregularity, or the type of debtor involved.
Because recovery is ongoing, it can be expected that the recovery rate for 2013
will also go up in the future.
2.3.        Specific
analysis
2.3.1.     Irregularities
reported as fraudulent
2.3.1.1.  Modus
operandi
In 2013, most of the fraud cases (83 %) and
the majority of established amounts[11]
(93 %) for fraud cases in the EU-28 are related to the customs procedure
‘release for free circulation’. A total of 6 % of all cases and 2 %
of all established amounts in OWNRES fraud cases registered for 2013 involve
the transit procedure. The percentage of established amounts for fraud cases
involves customs warehousing and inward processing — 4 % and 1 %
respectively.
A breakdown of frauds by mechanism type reveals
that most cases of fraud relate to false declarations. Incorrect use of preferential arrangements,
incorrect origin or country of dispatching, or classification are most frequently mentioned. Smuggling as a fraud mechanism ranked second place in 2013.
2.3.1.2.  Method
of detection of fraud cases
In 2013[12],
most fraud cases were revealed during inspections by anti-fraud services (47 %) and customs controls at the time of
clearance of goods (29 %).
Other methods that featured frequently were post-clearance controls (11 %) and tax audits (9 %).
CHART TOR5:
Fraud cases - % of the method of detection by cases in 2013
In monetary terms, of the EUR 54 million established in fraud cases
registered for 2013, around 56 % were discovered by anti-fraud services, 14 % by tax audits, 13 % during a clearance control and 11 % during post-clearance controls. Only in Spain, were tax audits the
most important detection method for fraud cases in monetary terms. In Belgium, the Czech Republic, Greece, Germany, France, Italy and Romania more than 50 % of all established amounts in fraud
cases were detected by anti-fraud services. As regards amounts, clearance
controls were the most important method for detecting fraud in Croatia, Latvia, Finland and the United Kingdom.
CHART TOR6:
Fraud cases - % of the method of detection by amounts established in 2013
2.3.1.3.  Smuggled
cigarettes
In 2013, there were 133 cases of smuggled
cigarettes registered (CN code[13]
24 02 20 90) involving estimated TOR of around EUR 7 million. In 2012 the
number of cases of smuggled cigarettes was 224, totalling around EUR 25
million.
Table TOR1: Cases of smuggled cigarettes in 2013
The highest number of cases was reported by the
  UK (22). The highest amount was reported by Greece (EUR 1.3 million).
No cases were reported by Denmark, Estonia, Spain, France, Cyprus, Luxembourg, Portugal, Slovenia, Slovakia and Sweden.
2.3.1.4.  Fraud
cases by amount category 
In 2013, the established amount was below EUR 50 000 in 460 cases of fraud (73 % of all fraud cases), whereas it was above EUR
50 000 in 173 cases (27 %).
Table TOR2: Fraud by amount category in
2013
The total established amount in fraud cases
where the amount at stake was above EUR 50 000 amounted
to EUR 46 million (86 % of all the established amounts in
fraud cases).
2.3.2.     Irregularities
not reported as fraudulent
2.3.2.1.  Modus
operandi
In 2013 most of the established amounts in
OWNRES in the EU-28 (87 %) for irregularity cases related to the customs
procedure ‘release for free circulation’.[14]
In all, 7 % of all established amounts in OWNRES cases in 2013 involved
inward processing, 4 % related to customs warehousing and only 1 % to
transit procedure. A high amount was established and reported in connection
with inward processing by the United Kingdom (EUR 17 million).
A breakdown of irregularities by mechanism type
confirms that most cases of irregularity relate to incorrect declarations
(incorrect classification, value, country of origin or use of preferential
arrangements) and formal shortcomings (failure to fulfil obligations or
commitments).
2.3.2.2.  Method
of detection of irregularity cases
In 2013, most irregularity cases (56 %) were revealed during post-clearance
customs controls. Other methods of detection for irregularities that featured
frequently were clearance controls (12 %), tax audits (10 %) followed by anti-fraud services (9 %).[15]
CHART TOR7:
Non-fraudulent irregularity cases - method of detection of irregularity by
number of cases in 2013
Considering the established amounts, around
56 % of all irregularity
cases registered for 2013 were discovered by post-clearance controls, whereas
16 % were related to
voluntary admission, 9 % to
tax audits, 8 % to inspections
by anti-fraud services and 8 % to controls at the time of clearance of goods. In 10 Member
States, more than 50 % of
all irregularity cases — in amounts — were detected by post-clearance controls.[16] In France, Portugal and   Romania more than 50 % of the amounts relating to irregularity cases
were detected by anti-fraud services. Significant amounts were reported as
irregularities following voluntary admission by Germany (EUR 37 million), the UK (EUR 10 million) and the Netherlands (EUR 2 million).
CHART TOR8:
Non-fraudulent irregularity cases - method of detection of irregularity by amounts
in 2013
2.3.2.3.  Non-fraudulent
irregularities by amount category
In 2013, the established amount was below EUR 50 000 in 3100 cases of irregularity (75 % of all irregularity cases), whereas it was above EUR 50 000 in 1 044
cases (25 %).
The total established amount in irregularity
cases where the amount at stake was above EUR 50 000 amounted
to EUR 267 million (82 %
of all the established amounts in irregularity cases).
Table TOR3: Non-fraudulent irregularities by amount
category in 2013
2.4.        Member
States’ activities 
2.4.1.     Member
States’ classification of cases of fraud and other irregularities and related
rates 
For 2013, Member States classified 633 cases as
fraud out a total of 4777 cases reported via OWNRES, which indicates a Fraud
Frequency Level (FFL) of 13 %. The differences between Member States are relatively large. In
2013 most Member States categorised between 10-50 % of all cases as fraud. However, four Member States did not
categorise any cases as fraud.[17]
Six Member States categorised less than 10 % of cases as fraud.[18]
Seven Member States registered more than 50 %[19]
of cases as fraud.
In 2013, the total established and estimated
amount affected by fraud in the EU was EUR 61 million and the overall fraud detection
rate was 0.29 %. For 2013, the highest percentages can be seen in Malta with 3.75 % and Lithuania 2.52 %.[20]
The total established and estimated amount
affected by irregularities was more than EUR 328 million which indicates an irregularity
detection rate of 1.57 %. The highest percentages can be seen in Cyprus (4.81 %) and Bulgaria (3.06 %).[21]
There are large differences between Member
States’ classifications, which may partly depend on their classification
practices. This can influence the comparison of the amounts involved in fraud
and irregularities by Member States. Moreover, individual bigger fraud cases
detected in a specific year may affect annual rates significantly. Factors such
as the type of traffic, type of trade, the level of compliance of the economic
operators, the location of a Member State can influence the rates significantly.
Bearing in mind these variable factors, the detection rates can also be affected
by the way a Member State’s customs control strategy is set up to target risky
imports and to detect TOR-related fraud and irregularities.
2.4.2.     Recovery
rates 
2.4.2.1.  Fraud
Over the 1989-2013 period, OWNRES shows that, on
average, 18 % (1989-2013) of the initially established amount was
corrected (cancelled). The recovery rate (RR) for all years (1989-2013) is
28.25 %.[22]
The RR for fraud cases detected in 2013 was 23.74 %[23] which is below the
average rate of 33.5 % for fraud cases for the 2008-2012 period.[24] The RR in fraud cases
is clearly much lower than that for irregularities.
2.4.2.2.  Other
Irregularities
OWNRES shows that on the cut-off date, an
average 36 % (1989-2013)
of the initially established amount in relation to irregularities has been corrected
(cancelled) since 1989. The RR for irregularity cases reported for 2013 is 67.9 %.[25]
On the cut-off date, the annual RR for the last five years has varied between
60 % and 82 %. The overall RR for all years
(1989-2013) for all irregularity cases is 67.34 %.[26]

2.4.2.3.  Historical
recovery rate
Also in the long term, the HRR reveals an
equally strong relation as annual recovery rates, showing that recovery in
fraud cases is generally much less successful than in cases of irregularity
(see table TOR4). Classification of a case as fraud is thus a strong indicator
for forecasting short- and long-term recovery results.
Table TOR4: Historical recovery rate (HRR)
2.4.3.     Commission’s
monitoring 
2.4.3.1.  Examination
of the write off reports
In 2013, 19 Member States submitted 144 new
write-off reports to the Commission. In 2013, the Commission processed 203
cases in all totalling EUR 83
million, including cases that had been reported previously for which Member
States had sent additional information. In 47 of these cases amounting to EUR 22 million, Member States were asked to
pay the outstanding amounts as they were not considered diligent in recovering
the debts.
Examination of Member States’ diligence in
write-off cases constitutes a very effective mechanism for gauging their
activity in the field of recovery. It encourages national administrations to
step up the regularity, efficiency and effectiveness of their recovery
activity, since any lack of diligence leading to failure to recover results in
individual Member States having to foot the bill.
2.4.3.2.  Commission’s
inspections 
In its TOR inspections, the Commission has put
a special emphasis on Member States’ customs control strategies and closely monitors
their actions in relation to the observations made during the inspections.
Member States show their willingness to adapt their control strategies and to
progressively implement systems that provide for efficient and effective risk
analysis to protect the EU’s financial interests. Thematic reports
consolidating the results of the inspections and evaluating and comparing
Member States’ performance are frequently prepared and discussed with the
Member States with a view to remedying the individual shortcomings found. One
general conclusion drawn by the Commission from its
inspections in Member States in
recent years is that their control strategies are increasingly shifting from
customs controls at the time of clearance of goods to post-clearance customs
controls. For transit procedure, a decreasing number of irregularities have
been observed which is also due to fully automated processing of transit
shipments following the introduction of Phase 4 of NCTS.
2.4.3.3.  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 liability.[27]
Member States have been held financially liable in 2013 for over EUR 14.7 million, and new cases are being given appropriate follow-up.
Part II -
EXPENDITURE
Section I - Shared
Management
Natural
Resources
Success in previous decades in guaranteeing
sufficient food production, has led to a shift in emphasis to, producing higher
quality food for consumers, increasing farms' profitability, diversifying the
rural economy and protecting the natural environment. There is a direct
management component but the majority of expenditure is disbursed by Member
States under the following shared management funds. 
·              
The European Agricultural Guarantee Fund (EAGF)
which finances direct payments to farmers and measures to respond to market
disturbances, such as private or public storage and export refunds.
·              
The European Agricultural Fund for Rural
Development (EAFRD) which finances the rural development programmes of the
Member States.
·              
The European Fishery Fund (EFF) which provides
funding and technical support for initiatives that can make the fishery
industry more sustainable.
Table NR1 shows the financial resources
available for this policy area.
Table NR1: Financial instruments and 2013
appropriations for the Natural Resources Policies
3.           Common
Agricultural Policy (CAP)
3.1.        Introduction
For the last 50 years the Common Agricultural
Policy (CAP) has been the European Union's (EU) most important common policy.
This explains why traditionally it has taken a large part of the EU's budget,
although the percentage has steadily declined over recent years.
The CAP is financed by two funds, EAGF and
EAFRD, which form part of the EU's general budget.
Under the basic rules for the financial
management of the CAP, the Commission is responsible for the management of the
EAGF and the EAFRD. However, the Commission itself does not make payments to
beneficiaries. According to the principle of shared management, this task is
delegated to the Member States, who themselves work through national or
regional paying agencies. Before these paying agencies can claim any
expenditure from the EU-budget, they must be accredited on the basis of a set
of criteria laid down by the Commission.
The paying agencies are, however, not only
responsible for making payments to the beneficiaries. Prior to doing so, they
must, either themselves or through delegated bodies, satisfy themselves of the
eligibility of the aid applications. The exact checks to be carried out are
laid down in the different sectoral regulations of the CAP and vary from one
sector to another.
The expenditure made by the paying agencies is
then reimbursed by the Commission to the Member States, in the case of the EAGF
on a monthly basis and in the case of EAFRD on a quarterly basis. Those
reimbursements are, however, subject to possible financial corrections which
the Commission may make under the clearance of accounts procedures.
Table NR2 shows the financial resources
available for the CAP.
Table NR2: Financial instruments and 2013
appropriations for the CAP
3.2.        General
analysis – Trend analysis
3.2.1.     Irregularities
reported as fraudulent
Table NR3 presents the trend of the
irregularities reported as fraudulent by Member States for the period 2009-2013
in relation to the fund concerned. This shows a significant increase in
relation to 2012 for the both funds: irregularities reported as fraudulent doubled
for the EAGF and quadrupled for the EAFRD. The most significant increase,
however, concerned those irregularities related to beneficiaries of both funds,
which have committed violations in relations to both schemes.
As a result, about half of the irregularities
reported as fraudulent in the period 2009-2013 affect the EAGF and about one
third the EAFRD. The remaining part consists of irregularities committed by
beneficiaries of both funds.
Table NR3: Irregularities reported as
fraudulent by Fund –2009-2013 for the CAP
The three entries of Table NR3 have
significantly increased in 2013 in comparison with previous years. This
increase is mainly due to the results communicated by four Member States (Bulgaria, Denmark, Italy and Romania) which represent about 75% of the total number of
irregularities reported as fraudulent in 2013. Apart from these four Member
States, other five contribute significantly to the total number of reported
cases (Czech Republic, Greece, Spain, France and Poland). The nine countries
together have reported about 94% of the total fraudulent irregularities.
Table NR4 provides in the same form of Table
NR3 information about the trends linked to the amounts involved in cases
reported as fraudulent and confirms the generalised increase in comparison with
the previous year.
The shares related to the two funds do not
diverge significantly with the distribution of available resources among them
(see Table NR2).
Table NR4: Financial amounts involved in
irregularities reported as fraudulent by Fund –2009-2013 for the CAP
The trend analysis about the financial amounts
can be misleading as it can be greatly influenced by single observations of
significant. For instance, the “distance” observed in 2011 between the two
funds, finds entire explanation in very few cases involving high amounts linked
to the EAGF, which determine the divergence from the trend highlighted in Table
NR3.
3.2.2.     Irregularities
not reported as fraudulent
Regarding irregularities not reported as
fraudulent, the number of those reported relating to EAFRD has been constantly
increasing (see Table NR5), while those related to EAGF has remained relatively
stable. Consistently with this trend, also the irregular amounts linked to the
rural development instrument have been increasing (as highlighted in Table
NR6), but with a trend that is more evident in the last three years.
Contrary to the irregularities reported as
fraudulent, only 1% of those not reported as fraudulent involves violations in
both funds. 
Table NR5: Irregularities
not reported as fraudulent by Fund – 2009-2013 for the CAP
Unlike fraudulent irregularities the largest
share, in terms of numbers, in 2013 is for the EAFRD, while for the period
2009-2013, the share of the two funds is almost evenly balanced.
The increase in the irregular amounts related
to the EAFRD is also determining the situation that 2012 represents the highest
peak in relation to irregular amounts linked to non-fraudulent irregularities
of the last five years.
Table NR5 shows the information concerning the
years 2009-2013.
Table NR5:
Financial amounts linked to irregularities not reported as fraudulent by Fund –
2009-2013 for the CAP
3.3.        Specific
analysis
3.3.1.     Irregularities
reported as fraudulent
3.3.1.1.  Modus
operandi
Table NR7 compares the types of irregulary / modi
operandi linked to fraudulent cases detected in 2013 with those detected
from 2009 to 2013 (included).
The most recurrent modus operandi is related to
the infringement related to documentary proofs, and in particular, to the use
of 'false or falsified declarations', 'false or falsified documents'
and 'false or falsified request for aid', ‘declaration of fictitious
product, species and/or land’ in line with what reported in general for the
whole period 2009-2013. ‘Quantities outside permitted limits, quotas or
thresholds (related, respectively to products, species or land)’ remained a
significant reported type of breach, resulting again from the reporting by the
Danish authorities as in 2012 and, probably linked to the follow-up to the same
investigation.
Another significant infringement reported in
2013 refer to the ‘beneficiary not having the required quality’ (51
occurrences), which represents a new development in relation to the previous
years.
Table NR7: Types
of irregularities in relation to the CAP
A single case of corruption has been reported
(it is included within the category 'OTHER') and involves an amount of over EUR
6.3 million (on the 15.7 million of that group). This case, reported by the Netherlands, is related to the financial year 1999 and due to its complexity and the
secrecy of investigations has been reported only in 2013.
3.3.1.2.  Type
of control / Method of detection
Table NR8 shows the types of controls having
identified the irregularities reported as fraudulent in 2013.
Table NR8: Control methods having identified the irregularities
reported as fraudulent in 2013
Minor differences are noticeable in comparison
with the whole reference period 2009-2013, as showed in Table NR9.
Table NR9: Control methods having identified
the irregularities reported as fraudulent 2009-2013
The bodies having identified the majority of
the irregularities reported as fraudulent are mainly the administrative bodies,
while the anti-fraud bodies deal with the cases with the highest financial
impact as showed in Table NR10. 
Table NR10: Types of controls having
detected the irregularities reported as fraudulent in 2013 in relation to the
CAP
Statistics concerning the cases detected by EU
bodies (including OLAF) do not appear entirely accurate.
Among the 247 cases related to Anti-fraud
controls, the great majority originates from Italy and Denmark.
3.3.1.3.  Complexity
of the irregularities reported as fraudulent
In 2012, for the first time, an estimation of the
level of complexity of the irregularities reported as fraudulent was provided. 
In relation to the information published in
2012 on this subject, the methodology to identify the complexity of reported
fraudulent irregularities has been reviewed and refined, therefore no
comparison should be made between the two documents as the present one is
founded on different ‘rules’[28].
Table NR11 provides an estimation of the level
of complexity of the irregularities reported as fraudulent based on this
revised methodology. It also compares the situation of those reported in 2013
with those communicated in the reference period 2009-2013 (included).
The share of the 'complex' cases slightly
increases in 2013 in comparison to the reference period, while share of the 'simple'
fraudulent irregularities decreases and the 'moderate' complexity category
remains fairly stable.
The 'complex' cases are referred to the EAFRD
for the majority (about 60%), while those related to the EAGF drop to 20% in
2013 in comparison to the 30% of the period 2009-2013. 
On the contrary, EAGF has the greatest share of
‘Simple’ cases (70% in 2013 and 65% in the period 2009-2013).
Table NR11: Complexity of fraudulent
irregularities detected in relation to the CAP
This is the second attempt of estimating the
proportion of 'complex' cases on the total fraudulent irregularities
identified. Therefore the method is liable of being improved in the next years.
3.4.        Anti-fraud
activities of Member States
Previous paragraphs have examined the trend and
main features and characteristics of the irregularities reported as fraudulent.
The present paragraph aims at examining some
aspects linked to the anti-fraud activities and results of Member States. Five
elements are taken into account:
(1)         
the time that runs between the beginning of the
fraudulent practice and its detection/establishment by the competent authority
and reporting to the Commission (Detection / Reporting Efficiency);
(2)         
the number of irregularities reported as
fraudulent by each Member State;
(3)         
the fraud detection rate (the ratio between the
amounts involved in cases reported as fraudulent and the payments occurred in
the financial year 2012);
(4)         
the fraud prevention rate (the ratio between the
amounts involved in cases reported as fraudulent which have been detected
before payments were executed);
(5)         
the ratio of cases of established fraud on the
total number of irregularities reported as fraudulent.
3.4.1.     Detection
– Reporting Efficiency 
Table NR12 shows the average number of months
between the moment in which the fraudulent practice is put in place and when
the fraudulent irregularity it is detected/established (Detection Efficiency –
DetE) and then the average number of months between its establishment and the
reporting (Reporting Efficiency – RepE) to the Commission. 
The EU average is about 6 years and three
months (75 months) between the first and the last of those events (DetE +
RepE). In 2012 this lapse consisted of about 4 years, while the overall average
for the reference period is about 5 years and a half (67 months).
The duration of the DetE should not be seen as
a sign of inefficiency per se. More relevant, in this respect, is the
RepE, which is, in average, about 20 months, worsening in comparison to 2012 (7
months).
Eleven (11) of the twenty-one (21) Member
States having reported fraudulent irregularities in 2013, have a DetE lower
than 40 months. 
Table NR12:
Detection and Reporting Efficiency by Member State
The results in 2013 are also negatively
influencing the overall results for the period 2009-2013, in particular as
irregularities reported as fraudulent in 2013 represent about one third of all
irregularities reported in the reference period.
In the case of the Netherlands, the result
depends exclusively on a single case related to an irregularity linked to the
financial year 1999, having involved a criminal investigation[29].
3.4.2.     Detection
of irregularities reported as fraudulent in 2012 by Member State
Map NR1 divides Member States in four groups,
depending on the number of irregularities reported as fraudulent in 2013:
(1)         
Group 1: no irregularities reported as
fraudulent irregularities in 2012;
(2)         
Group 2: between 1 and 9 such cases reported in
2012;
(3)         
Group 3: 10 to 30 irregularities reported as
fraudulent;
(4)         
Group 4: more than 30 cases reported.
The composition of these groups is similar to
the previous years, with the significant exception of Denmark, which is in Group 4, while in previous years it was in Group 1 or 2.
Map NR1:
Number of irregularities reported as fraudulent in 2013 by Member State - CAP
The detailed figures of Map NR1 are showed in
Table NR12.
3.4.3.     Fraud
detection rate
The fraud detection rate compares the results
obtained by Member States in their fight against fraud with the payments
received by them in a given financial year. This implies that a single case
reported as fraudulent and involving a significant financial amount can produce
a better result that that achieved by the sum of the financial impact of
several irregularities affecting lower amounts. For this reason, this indicator
should be read in conjunction with the number of irregularities reported as
fraudulent and for this reason they are presented together in Table NR13.
In 2013, the highest fraud detection rates are
referred to Malta, Italy, the Netherlands, Estonia, Italy, Bulgaria, Romania and Denmark.
Table NR13:
number of irregularities reported as fraudulent in 2013, amounts involved and
fraud detection rate by Member State
In relation to the Netherlands, the result, as
already mentioned, is due to a case related to the financial year 1998,
established in 2012 (after a complex criminal investigation in the Netherlands
and Belgium) and reported in 2013. In this case, the picture provided by the
indicator is clearly distorted and this should be taken into account.
3.4.4.     Ratio
of established fraud 2009-2013
Table NR14 shows the ratio between the cases of
established fraud and the total number of irregularities reported as fraudulent
(including suspected and established fraud) in the period 2009-2013. Taking
into account only cases reported in 2013 would be meaningless, as the criminal
proceedings leading to a conviction for fraud may take several years.
In this respect, the average ratio of
established fraud at EU level is 7% (increasing from 6% in 2012), with Latvia,
Bulgaria, Belgium, Germany, Austria and the United Kingdom showing a rate above
this level, and Poland presenting a rate in line with the EU average.
Table NR14:
number of cases of suspected and established fraud and ratio of established
fraud – cases reported between 2009-2013 in the CAP
A significant impact on the rate is determined
by the number of irregularities reported as fraudulent by Member States. In
this respect, the countries which influence the EU average results are Italy, Poland, Bulgaria, Romania and Denmark.
Data take into account also developments
related to older cases.
3.5.        Recovery
cases
3.5.1.     Legal
Framework
Regulation (EC) No 1290/2005 on the financing
of the CAP requires the Member States to recover sums lost as a result of
detected irregular payments. However, the recovery procedures, in accordance
with the principle of subsidiarity, are wholly the responsibility of the Member States concerned and, thus, subject to their individual judicial procedures.
Therefore, while some procedures delivery rapid results, other take a longer
period of time.
In order to address delays by some Member
States in recovering undue payments, the legislator introduced an automatic
clearing mechanism under which 50 % of any undue payments which the Member
States have not recovered from the beneficiaries within 4 years or, in the case
of legal proceedings, 8 years, would be charged to their national budgets
(50/50 rule).
Even after the application of this mechanism,
Member States are, however, obliged to pursue their recovery procedures and, if
they fail to do so with the necessary diligence, the Commission may decide to
charge the entire outstanding amounts to the Member States concerned. Moreover,
Member States are required to off-set any outstanding debts against future
payments to the debtor (compulsory compensation).
Undue payments that are the result of
administrative errors committed by the national authorities also have to be
deducted from the annual accounts of the paying agencies concerned and, thus,
excluded from EU financing.
3.5.2.     Amounts
recovered in 2013
Table NR15 sets out the amounts recovered in
2013 by the Member States for the EAGF (split between ABB02 and ABB03 is not
provided in the data received) and the EAFRD. This shows that 197 million EUR
was recovered in respect of the two funds.
Table NR15: Recoveries
by the Member States from the Final Beneficiaries of unduly paid amounts
3.5.3.     Application
of the 50/50 Rule
The financial consequences of non-recovery for
cases dating from 2009 (4 year deadline for recovery) or 2005 (8 year deadline
if legal proceedings) will be determined for 2013 in accordance with the 50/50
rule mentioned above by charging approximately €17.1 million to the Member
States concerned. Moreover, around € 18.7 million will be borne by the EU
budget for cases reported irrecoverable during financial year 2013. The final
figures will be established in April 2014 when the financial clearance decision
for financial year 2013 will be adopted. Due to the application of the 50/50
rule, important non-recovered sums have already been charged to the Member
States for EAGF expenditure.
The overall outstanding amount still to be
recovered from the beneficiaries at the end of that financial year was 1 318.3
million EUR. Of this amount, 1 097.1 million EUR is outstanding to the EU
budget (the difference having already been charged to the Member States via the
50/50 mechanism).
As regards the recovery of undue payments
financed by the EAFRD, it has to be noted that the 50/50 rule is applied only
after the closure of the rural development programmes.
The clearance mechanism (50/50 rule) referred
to above provides a strong incentive for Member States to recover undue
payments from the beneficiaries as quickly as possible. As a result, by the end
of financial year 2013, 49 % of the new EAGF debts from 2007 and thereafter had
already been recovered, which is a significant improvement compared to the
past. The detailed breakdown of this recovery rate has developed as indicated
in Table NR16.
Table NR16:
Rate of recovery from beneficiaries of irregularities detected since 2007
(EAGF)
It is worth noting that some of these new debt
amounts were already written off by Member States in the period 2007-2013 (€
74.6 million) and therefore they will most likely not be recovered. For more
details on the recovery rates at Member State level, see the Table NR17.
Table NR17:
Recoveries from beneficiaries for cases detected since 2007 in EUR (EAGF)
3.5.4.     Commission’s
Audits
During the period 2008-2013, the Commission has
audited the correct application of the new clearance mechanism through 29 audit
missions in 19 Member States (including all EU-15 Member States with a low
recovery rate for the cases detected since 2007). In general the Member States'
authorities have adequate procedures in place to protect the financial interest
of the European Union. Deficiencies found during these audits are being
followed in the context of conformity clearance procedures. The ECA's systems
audits for the last two years have not found any serious deficiencies in the
Member States' debt management systems.
The diligence of the Member States' authorities
in the recovery of the most significant individual irregularity cases is
assessed in the context of a further 30 on-going conformity clearance
procedures (desk audits).
Common Fisheries
Policy (CFP)
As the activities of each fishing fleet affect
the opportunities of other fleets, the EU countries have decided to manage
their fisheries in collaboration, through the common fisheries policy (CFP).
This policy brings together a range of measures designed to achieve a thriving
and sustainable European fishing industry.
Among the most important areas of action of the
CFP is the provision of funding and technical support for initiatives that can
make the industry more sustainable. These actions are supported by the European
Fisheries Fund (EFF).
3.6.        General
analysis
Implementation of programmes financed by the
EFF has been implemented more slowly than that of other policies under shared
management in the first years of the programming period 2007-2013[30]. For this reason, the
number of irregularities reported by Member States in relation to this fund is
limited and has started in 2010. 
Table NR18 shows the overall number of
irregularities (fraudulent and non-fraudulent reported by year and the related
financial amounts.
The increase from one year to the other simply
reflects the increased level of implementation of the programmes.
The share of irregularities reported as
fraudulent on the total is more important in 2013 (15% and 39% of the related
amounts) than in the reference period 2010-2013 (10% and 32% of the related
amounts).
Table NR18: EFF
- Irregularities (fraudulent and non-fraudulent reported by year – 2010-2013
3.7.        Specific
analysis
Given the limited number of irregularities
reported so far, the analysis covers the whole period 2010-13.
3.7.1.     Types
of irregularity detected
The number of irregularities reported in
relation to the EFF is limited and to some extent incomplete in relation to the
typologies of irregularities detected by national authorities.
This is reflected by the circumstance that of
the 271 detected irregularities (fraudulent and non-fraudulent), 62 do not
indicate the modus operandi (almost 23% of the total).
The most detected typology is 'Not eligible
expenditure', followed 'Absence of declaration' and 'Infringements of public
procurement rules' and ‘Failure to respect other regulations/contract
conditions’ and ‘Other irregularities concerning the right to aid’. These types
plus those for which no modus operandi has been reported cover almost
77% of the reported irregularities.
In relation to the 28 irregularities reported
as fraudulent, there is no real pattern emerging from the reported information,
also taking into account that in 12 cases no information has been provided. The
use of ‘false or falsified documents’ occurs five (5) times and four times (4)
problems linked to bookkeeping. 
3.7.2.     Method
of detection
In relation to the methods of detection, the
most frequently reported are 'Control of documents', 'Administrative or
financial controls' and 'On-the-spot checks'.
In relation to the irregularities reported as
fraudulent, ten (10) occurrences are linked to ‘controls by national anti-fraud
services’ and six (6) to the ‘control of documents’.
3.8.        Control
activity by Member States
Table NR19 shows the results of the control
activities in the Member States.
Irregularities have been detected and reported
by 21 Member States; fraudulent irregularities by 6 Member States. In terms of
numbers of irregularities, the majority has been detected by Spain and Poland, while in terms of amounts the highest results have been obtained by Romania and Spain.
Italy is the Member State having detected and reported the highest number of fraudulent irregularities.
The 19 Italian cases represent 68% of the total number of irregularities
reported as fraudulent and 77% of the related amounts.
Table NR19:
EFF – Irregularities (fraudulent and non-fraudulent) reported by Member State – 2010-13
Sustainable
Growth
Cohesion for growth and employment’ covers the
Structural Funds, i.e. the European Regional Development Fund (ERDF) and the
European Social Fund (ESF), as well as the Cohesion Fund (CF).
It relates essentially to the following policy
areas: 
·   
regional policy, for the ERDF and the CF, and 
·   
employment and social affairs, for the ESF. 
The principal objective of cohesion policy is
to strengthen economic, social and territorial cohesion between regions and
Member States of the EU by providing additional resources for those regions and
countries whose economic development is lagging behind. The Structural Funds
also aim at strengthening regions’ competitiveness and attractiveness, as well
as employment, and at strengthening cross-border, transnational and
interregional cooperation. The resources available are concentrated on
promoting economic convergence, in particular on sustainable growth,
competitiveness and employment in line with the Europe 2020 strategy. These
resources are also essential tools to fight financial, economic and social
crises.
Cohesion policy is promoted using three shared
management instruments, with individual EU countries
actually distributing funds and managing expenditure. 
Sustainable growth is also promoted through
centralised direct management by the Commission and centralised indirect
management where the Commission distributes funds to EU and other agencies (see
chapter 6). 
4.           Cohesion
Policy
The resources for the Cohesion policy support
three main objectives:
·              
Convergence: aims to modernise and diversify
regional economic structures, to support sustainable integrated economic
development and create sustainable jobs. 
·              
Regional competitiveness and employment: covers
environment and risk prevention, access to transport and
telecommunications services; Innovation and the
knowledge economy.
·              
The European Territorial Cooperation objective:
focuses on development of economic and social cross-border activities;
transnational cooperation, and networking and exchange of experiences between
regional and local authorities.
Three financial instruments are the vehicles to
achieve the goals of this policy:
–              
The European Regional Development Fund (ERDF) is the largest
fund and aims to support the development and structural adjustment of less
developed regions in all Member States through investments in research,
infrastructure, business support or direct financial support to SMEs.
–              
The European Social Fund (ESF)
prevents and fights unemployment, by making Europe's workforce and companies
better equipped to face new challenges and preventing people losing touch with
the labour market. Training programs are the primary method; however advice,
coordination and sometimes microfinance are also provided to entrepreneurs and
SMEs. 
–              
The Cohesion Fund promotes sustainable development in Member states with a per person GNI below
90% of the EU average. The fund has two components: Transport and Environment.
Table CP1 shows the financial resources
available for the Cohesion Policy under the different financial instruments.
The table also shows that, even if there are virtually no more commitments
related to the programming period 2000-06, payments linked to it, although
limited, are still part of the picture.
Table CP1:
Financial instruments and 2013 appropriations for the Cohesion Policy by
programming period and financial instruments
4.1.        Trend
analysis
In comparison with the other budget sectors,
the analysis of the Cohesion policy poses a higher level of complexity, given
by the fact that the information received is related to different programming
periods, which are regulated by different rules.
4.1.1.     Irregularities
reported as fraudulent
4.1.1.1.  Trend
by programming period
Table CP2 analyses the trend linked to the
communication of the irregularities reported as fraudulent in the last five
years (2009-2013), making a distinction by Fund involved and the relevant
programming period.
In the last five years, while the fraudulent
irregularities linked to the PP2000-06 have been decreasing (although this
decrease is less evident between 2012 and 2013), those linked to the PP2007-13
have been constantly increasing. These trends are linked to the current
implementation of the latter period and the closure of the previous. They also
reflect the increasing attention and resources deployed to combat fraud in
relation to the programming period 2007-13.
Table CP2: trend of the number of irregularities reported as
fraudulent between 2009 and 2013 by programming period – Cohesion Policy
Table CP2 and its associated chart do not
include irregularities reported as fraudulent related to previous programming
periods, which have been communicated until 2011.
Table CP3 provides in the same form of Table
CP2 information about the trends linked to the amounts involved in cases
reported as fraudulent, confirming the continuous increase related to the
PP2007-13, although, concerning involved amounts, fluctuations can be much more
significant as individual cases involving high amounts can easily distort the
overall picture. This is clearly the case concerning the years 2011 to 2013,
with the intermediate showing the highest amounts.
Table CP3: trend of financial amounts linked to the irregularities
reported as fraudulent between 2009 and 2013 by programming period – Cohesion
Policy
4.1.1.2.  Trend
by Fund
The analysis of the same data presented in
Table CP2 but focussed on the distribution of the irregularities reported as
fraudulent by Fund (Table CP4), highlights the following situations:
(1)         
The increase since 2010 of cases concerning the
ERDF;
(2)         
Potential frauds affecting the Cohesion fund are
reported regularly since 2010, while they were completely absent in the
previous programming period,
(3)         
A significant decrease, between the years 2009-2011,
of the cases related to the ESF, which since then have remained quite stable.
Table CP4:
trend of the number of irregularities reported as fraudulent between 2008 and
2012 by Fund – Cohesion Policy
Table CP5 analyses these trends examining the
financial amounts linked to the irregularities reported as fraudulent in the
reference period.
In this respect, the weight of the ERDF on the
total is accentuated by the higher amounts with which this fund contributes to
the co-financing of development projects.
Since 2010 the increasing weight of the
Cohesion Fund and of the ERDF is confirmed also in relation to the amounts
involved.
Table CP5: trend of financial amounts linked to the irregularities
reported as fraudulent between 2008 and 2012 by fund – Cohesion Policy
4.1.1.3.  Trend
by objective
Specific to the Cohesion Policy is that
programmes and financial resources available to implement them are closely
linked to the geographical dimension, that is to say that the objectives that
they pursue depend on the region (and its level of economic development) in
which they are implemented. For this reason, the analysis by objective is
important.
From this point of view, the analysis of
irregularities reported as fraudulent in the last five years do not change the
trend already highlighted in past reports.
As showed in Table CP6, the fraudulent
irregularities detected and reported by Member States mainly concern programmes
implemented under the Convergence objective (previously Objective 1), linked to
the less economically developed regions in Europe.
Their notifications have progressed in a linear
way since 2010. 
Nonetheless, the distribution among the various
objectives is remarkably similar to the distribution of the resources among the
objectives, at least in relation to the overall situation 2009-2013. 
This parallelism is however lost in relation to
the distribution of the involved amounts as showed in Table CP7.
Table CP6:
trend of irregularities reported as fraudulent between 2009-13 by Objective
The analysis by objective presented above is
exclusively referred to the programming period 2007-13.
Table CP7 analyses the trend in relation to the
reported amounts linked to the irregularities showed in Table CP6.
The Convergence objective shows an absolute
predominance in this respect, as it represents about 95% of the total amounts
linked to fraudulent irregularities in the reference period.
This is only partially rebalanced in relation
to the fraudulent irregularities notified in 2013.
Table CP7:
trend of amounts related to irregularities reported as fraudulent between
2009-13 by Objective
The analysis by objective presented above is
exclusively referred to the programming period 2007-13.
4.1.2.     Irregularities
not reported as fraudulent
Table CP8 analyses the trend linked to the
communication of the irregularities not reported as fraudulent in the last five
years (2009-2013), making a distinction by Fund involved and the relevant
programming period.
Data confirm the increasing results of checks
performed on the project financed in the framework of the programming period
2007-13 due to its mounting level of implementation and the progressive
phasing-out from the actions linked to the previous programming phase.
The level of reporting related to the
programming period 2007-13 has already almost reached the levels of reporting
that in the previous programming cycle were recorded at closure.
Table CP8: trend of the number of irregularities not reported as
fraudulent between 2009 and 2013 by programming period – Cohesion Policy
Table CP9 shows the trend related to the
amounts linked to the reported non-fraudulent irregularities. Once more, as
already mentioned several times in relation to the trends of the financial
amounts, fluctuations can happen more often, as they are linked to individual
irregularities or group of irregularities of significant value, which produce
distortive effects from one year to the other.
Table CP9: trend of financial amounts linked to the irregularities
not reported as fraudulent between 2009 and 2013 by programming period –
Cohesion Policy
4.2.        Specific
Analysis – Irregularities reported as fraudulent in relation to the Programming
Period 2007-13
4.2.1.     Priorities
concerned by the irregularities reported as fraudulent in 2013
The operational programmes financed by the
Cohesion Policy are implemented in relation to the already mentioned
objectives, but also along identified Priorities and Themes. 
The information provided by Member States
allows for an analysis of the priority areas in relation to which Member States
have identified projects affected by potentially fraudulent practices. 
Table CP10 shows the number of reported
fraudulent irregularities and their related financial amounts.
In terms of numbers, the 'Priorities' most
concerned were 'Research and Technological Development (RTD)', 'Improving
access to employment and sustainability' and 'Investment in social
infrastructure'. 
From the amounts point of view, the most
significant results concern 'Transport', ‘RTD’ and 'Investment in social
infrastructure'.
The highest average values per fraudulent
irregularities concern the priorities ‘Transport’, ‘Energy’ and ‘Environmental
protection and risk prevention’.
Table CP10: PP2007-13 - Irregularities reported as fraudulent by
Priority
About 45% of the irregularities used for this
analysis did not provide information in relation to the priority area
concerned.
The table focuses on the last two years in
consideration of the fact that Member States started reporting information
concerning the ‘priority’ areas in a more consistent way as of 2012.
4.2.2.     Types
of irregularities / modus operandi detected - Irregularities reported as
fraudulent in 2013
The analysis of the detected practices used
in connection with the irregularities reported as fraudulent in 2013 (Table CP11)
reveals a relative decrease of those generically described as 'not-eligible
expenditure' and a significant increase of those linked to the use of 'false or
falsified or incorrect documents, certificates or declarations', which
intuitively represent the type of behaviour directly linked to fraud as aimed
at deceiving the administration/body paying out the funding.
Apart from the residual category ‘Other’, the
groups which showed the most significant variation in comparison with previous
years, are linked ‘Multiple financing’ and to irregularities concerning the
accounts/bookkeeping.
Although marginal on the total, two case
potentially involving corruption have been detected and reported, bringing the
total number to 14 in the period 2009-2013. These 14 cases affect the highest
average amounts reported in the reference period (about EUR 7 million).
Table CP11: Programming Period 2007-13 - Types of irregularity/Modus
operandi detected in relation to irregularities reported as fraudulent
The number of irregularities for which no
description has been provided has been increasing significantly in 2013 in
relation to previous years.
4.2.3.     Type
of control / method of detection – Irregularities reported as fraudulent
The analysis of the information concerning the
Programming Period 2007-13 shows an important shift in relation to the previous
programming period. The number of fraudulent irregularities detected by
administrative controls is proportionally significantly higher than what was
the case in the previous period, where the administrative verifications, on the
spot checks and audit of operations would detect less than 20% of the cases,
while in the current period they detect about 63%. This is only slightly
decreasing in 2013, where irregularities reported as fraudulent detected by the
management and control systems of the funds represent 55% of the total.
Both the analysis on 2013 and the reference
period 2009-2013 confirm that anti-fraud checks and criminal investigations
focus on cases with higher financial amounts involved.
Table CP12: Programming Period 2007-13 -
Type of checks having detected the irregularities reported as fraudulent
The results of this analysis may be influenced
by the accuracy of the information reported by Member States, which may have
highlighted the subsequent activity of bodies in charge of the management and
control of the funds and neglected the detection activity of the anti-fraud
bodies.
Another element to be kept into account is that
for 197 cases reported in the years 2009-2013, it was not possible to determine
the type of check.
The number of cases linked to investigations by
EU bodies (including OLAF) is not accurate.
4.2.3.1.  Complexity
of the irregularities reported as fraudulent
In 2012, for the first time, an estimation of
the level of complexity of the irregularities reported as fraudulent was
provided. 
In relation to the information published in
2012 on this subject, the methodology to identify the complexity of reported
fraudulent irregularities has been reviewed and refined, therefore no
comparison should be made between the two documents as the present one is
founded on different ‘rules’[31].
Table CP13 provides an estimation of the level
of complexity of the irregularities reported as fraudulent based on this
revised methodology. It also compares the situation of those reported in 2013
with those communicated in the reference period 2009-2013 (included).
The share of the 'complex' cases decreased in
2013 in relation to the reference period, while share of the 'simple'
fraudulent irregularities remained stable, with a consequent increase of the
'moderate' complexity category.
The 'complex' cases are mainly referred to the
ESF. 
Table CP13: Complexity of fraudulent
irregularities detected in relation to the Cohesion policy
This is the second attempt of estimating the
proportion of 'complex' cases on the total fraudulent irregularities
identified. Therefore the method is liable of being improved in the next years.
4.2.4.     Type
of irregularities not reported as fraudulent – 2008-2013
Table CP14 provides an overview of the types of
irregularities detected in relation to non-fraudulent irregularities. 
It confirms some of the main trends highlighted
in previous years, as the infringements most frequently detected and those
involving the highest amounts are those concerned with public procurement.
Table CP14: Programming period 2007-13 -
types of non-fraudulent irregularities
4.3.        Anti-fraud
activities by Member States
Previous paragraphs have examined the trend and
main features and characteristics of the irregularities reported as fraudulent.
The present paragraph aims at examining some
aspects linked to the anti-fraud activities and results of Member States. Five
elements are taken into account:
(1)         
the time that runs between the beginning of the
fraudulent practice and its detection/establishment by the competent authority
and reporting to the Commission (Detection / Reporting Efficiency);
(2)         
the number of irregularities reported as
fraudulent by each Member State;
(3)         
the fraud detection rate (the ratio between the
amounts involved in cases reported as fraudulent and the payments occurred in
the financial year 2012);
(4)         
the fraud prevention rate (the ratio between the
amounts involved in cases reported as fraudulent which have been detected
before payments were executed);
(5)         
the ratio of cases of established fraud on the
total number of irregularities reported as fraudulent.
4.3.1.     Detection
– Reporting Efficiency 
Table CP15 shows the average number of months
between the moment in which the fraudulent practice begins and when it is
detected/established (Detection Efficiency – DetE) and then the average number
of months between its establishment and the reporting to the Commission (Reporting
Efficiency – RepE). 
The EU average is more than three years (38
months) between the first and the last of those events (DetE + RepE).
The duration of the DetE should not be seen as
a sign of inefficiency per se. More relevant, in this respect, the RepE,
which is, in average, about 8 months that is an acceptable time frame.
For nine (9) Member States having reported
fraudulent irregularities in 2013, the DetE is lower than 30 months (EU
average), while eleven (11) are above this average.
The overall time gap between the initial moment
and reporting (DetE + RepE) is increasing in 2013 in comparison with previously
reported information. This is normal as the programming period implementation
goes forward and potential fraud is increasingly detected after payment.
Table CP15: Cohesion Policy – Detection and Reporting Efficiency
Three Member States (Austria, Finland and Ireland) have not reported fraudulent irregularities in 2013 in relation to the
programming period 2007-13. For Ireland, information provided in relation to
cases reported in previous years did not allow calculating any average time
gap. For Malta and Finland, the calculation was possible only in relation to
DetE.
The Netherlands, Denmark and Luxembourg have reported no fraudulent irregularities in relation to the programming period
2007-2013.
4.3.2.     Detection
of irregularities reported as fraudulent in 2013 by Member State
Map CP1 divides Member States in four groups,
depending on the number of irregularities reported as fraudulent in 2013:
(1)         
Group 1: no irregularities reported as
fraudulent irregularities in 2013. 7 Member States belong to this group.
(2)         
Group 2: between 1 and 9 such cases reported in
2012. 11 Member States belong to this group;
(3)         
Group 3: 10 to 30 irregularities reported as fraudulent.
8 countries are included in this group;
(4)         
Group 4: more than 30 cases reported. It counts 1
Member State.
Map CP1:
Number of irregularities reported as fraudulent in 2013 by Member State – Cohesion Policy
4.3.3.     Fraud
detection rate
The fraud detection rate compares the results
obtained by Member States in their fight against fraud with the payments
received by them in a given financial year. This implies that a single case
reported as fraudulent and involving a significant financial amount can produce
a better result than that achieved by the sum of the financial impact of
several irregularities affecting lower amounts. For this reason, this indicator
should be read in conjunction with the number of irregularities reported as
fraudulent and for this reason they are presented together in Table CP16.
In 2013, the highest fraud detection rates are
referred to the Latvia, the United Kingdom, Slovenia, Romania and the Czech  Republic (all above 0.3%).
A second important element is the stock of
reported irregularities and involved amounts and their relation to the payments
occurred in the reference period.
The highest number of detected fraudulent
irregularities for the period 2007-13 originates from Germany, Poland, the  Czech Republic, Italy, Romania and Latvia.
The accumulated fraud detection rate
(2008-2013) is the highest (>0.3%) for the Czech Republic, Latvia, Italy, Poland, Romania and Slovenia.
Table CP16:
number of irregularities reported as fraudulent in 2013, amounts involved and
fraud detection rate by Member State
4.3.4.     Fraud
Prevention Rate
The fraud prevention rate (FPR) compares the
percentage of the amounts detected before payment with the total amounts
related to irregularities reported as fraudulent.
The calculation is performed on the whole stock
of irregularities reported as fraudulent in the years from 2008 to 2013 and not
exclusively on those reported in 2013.
The FPR can easily result higher in the case of
Member States having reported a low number of fraudulent irregularities and therefore
should be ‘read’ and interpreted together with the overall number of
irregularities reported as fraudulent and the fraud detection rate, as showed
in Table CP17.
The overall FPR is above 48%, indicating that
almost half of the amounts involved in fraudulent irregularities is detected
before payment. 
In this respect, the most performing Member
States, which satisfy the two conditions of having FPR and FDR above the
average are the Czech Republic and Latvia.
Table CP17: number of irregularities reported as fraudulent between
2008 and 2013, amounts involved, irregular amounts paid out and fraud prevention
rate by Member State
4.3.5.     Ratio
of established fraud 2008-2012
Table CP18 shows the ratio between the cases of
established fraud and the total number of irregularities reported as fraudulent
(including suspected and established fraud) in the period 2008-2013. It would
be meaningless to take into account only cases reported in 2013, as the
criminal proceedings leading to a conviction for fraud may take several years.
In some Member States, proceedings to establish fraud may be, in certain cases,
of an administrative nature.
In this respect, the average ratio of
established fraud at EU level is 11% (up from 3%), with a significant increase
in comparison to the calculation of this indicator on the previous Report. 
Two Member States decisively contribute to this
result in consideration of the number of established fraud cases reported: Greece and Germany. High ratios (significantly above average) are showed by Greece, Slovenia,
Germany and Cyprus show a rate above this level; Estonia, Poland, the Czech
Republic and Slovakia show a rate that is higher than last year’s average (3%).
Table CP18:
number of cases of suspected and established fraud and ratio of established
fraud – cases reported between 2008-2013 in the Cohesion policy
A significant impact on the rate is determined
by the number of irregularities reported as fraudulent by Member States. In
this respect, the countries which greatly influence the EU average results are Poland, Germany, the  Czech Republic, Italy Romania, and Latvia.
Greece has reported 22
cases, of which 20 of established fraud, following an administrative
proceeding, which ascertained the fraudulent practices and imposed the related
sanctions. The concerned persons are entitled to appeal in justice against
these decisions.
Section II -
Decentralised Management
The EU as a
global player / Pre-Accession Policy
The goal of the EU as a global player is also
promoted through direct management. Pre-Accession Assistance (PAA) is provided
through decentralised management where third countries distribute funds but
account to the EU for how it is spent. In the last stages new member states
manage pre-accession funds under shared management to help them complete the
transition. 
5.           Pre-Accession
Policy (Pre-Accession Assistance and Instrument for Pre-Accession)
The assistance in pre-accession is provided on
the basis of the European Partnerships of the potential candidates and the
Accession Partnerships of the candidate countries. The current candidate
countries are Croatia, Iceland[32],
the Former Yugoslav Republic of Macedonia, Montenegro, Serbia and Turkey. Accession negotiations were opened with Croatia and Turkey in October 2005 and with Iceland in July 2010.
5.1.        The
Pre-accession Assistance (PAA), 2000-06 and Instrument for Pre-Accession (IPA),
2007-13
The old Pre-accession Assistance (PAA),
regarding the period 2000-06, was financed by series of European Union
programmes and financial instruments for candidate countries or potential
candidate countries, namely the programmes for candidate countries, PHARE, SAPARD and ISPA, Phare Cross-Border Cooperation (CBC) and Coordination, Pre-accession financial assistance for Turkey[33], Assistance for
reconstruction, development and stabilisation for potential candidate
countries (CARDS)[34] and Transition facility[35].This assistance has
nearly been closed except for a few payments in CARDS.
The current Instrument for Pre-Accession
Assistance (IPA), which covers the period 2007-2013, is delivered through five
components. The policy and programming of IPA consists of Multi-Annual Indicative Financial
Framework (MIFF) on a three year basis, established by country,
component and a theme, and Multi-Annual Indicative Planning
Documents (MIPDs) per country or per groups of countries (regional
and horizontal programmes). The Candidate Countries submit also Strategic
Coherence Frameworks (SCF) and Multi-annual Operational Programmes, both
regarding IPA Components III and IV. Their principal aim is to prepare
beneficiary countries for the future use of the Cohesion policy instruments by
imitating closely its strategic documents, National Strategic Reference
Framework (NSRF) and Operational Programmes (OP), and management modes.
The financing of IPA is provided by the five
following different components and DG Enlargement leads in the coordination of
the instrument:
(5)         
Component I, Transition Assistance and
Institution Building (TAIB), is managed by the European Commission's Directorate General for Enlargement;
(6)         
Component II, Cross-Border Cooperation,
is managed by the European Commission's Directorate General for Enlargement and part
is managed, under shared management with Member States, by European
Commission's Directorate General for Regional
Policy;
(7)         
Component III, Regional Development, is
managed by the European Commission's Directorate General for Regional
Policy;
(8)         
Component IV, Human Resources Development,
is managed by the European Commission's Directorate General for
Employment and Social Affairs; and 
(9)         
Component V - Rural Development is
managed by the European Commission's Directorate General for
Agriculture.
The pre- and post-accession assistance is
implemented through a variety of management modes which take into
account different levels of preparedness of the beneficiary countries.
The assistance under IPA is designed also to prepare the beneficiary countries
to assume full responsibility for the management of financial assistance
granted by the EU.
The eligibility for IPA components differs
depending on the state of preparedness. In the use of funds the IPA beneficiary
countries are divided into two categories. The EU candidate countries Croatia, the Former Yugoslav Republic of Macedonia, Serbia and Turkey are eligible for all five
components of IPA. While the new candidate countries, Iceland and Montenegro (candidate status awarded in 2010), currently remain
outside the scope of intervention of IPA Component III, the regional
development. The Potential candidate countries in the Western Balkans (Albania, Bosnia and Herzegovina, Montenegro and Kosovo under UN Security Council Resolution 1244/99)
are eligible only for the first two components.[36]
Implementation of Components I and II falls
under the responsibility of DG Enlargement, which initiates the components under
a centralised management mode, with a view to transferring implementation
management powers to the beneficiary countries as soon as their administrative
capacities are considered sufficiently developed to ensure sound financial
management. The EU Delegations play a major role in the
delivery of IPA, in particular under the de-concentrated and decentralised
management modes.[37]
The implementation can be handled:
·              
directly by central management: funds are managed
by DG Enlargement at headquarters;
·              
directly de-concentrated: funds are managed by
EU Delegations under the supervision; 
·              
directly centralised: cross-delegated when funds
are managed by another service of the Commission through cross sub-delegation;
·              
indirectly in a centralised indirect management:
funds are managed by executive agencies, specialised Community bodies (such as
the European Investment Bank or the European Investment Fund) and national or
international public-sector bodies or bodies governed by private law with a
public-service mission;
·              
indirectly decentralised with ex ante control:
funds are managed by accredited national authorities of the beneficiary
country, but procurement is subject to ex ante control by the EC Delegation;
·              
decentralised without ex ante control: funds are
managed by accredited national authorities of the beneficiary country and are
not subject to ex ante controls by an EC Delegation;
·              
joint: funds are jointly managed with
International Organisations (EBRD, EIB, Sigma, UN agencies, etc.)
In Croatia, the implementation of Pre-accession
assistance is decentralised to national authorities. Montenegro is preparing for
conferral of management powers for IPA Component I and II. Decentralised
management is still under development in the Former Yugoslav Republic of
  Macedonia. Payments in decentralised programmes remained less than half of
the initial forecasts in FYROM. In Serbia, the national authorities submitted
an application for the conferral of management in June 2012 and it could be
granted by the end of 2013. Absorption capacity under decentralised management
in Turkey is not optimal, with delays in tendering, contracting, as well as
execution of payments.[38]
In the old pre-accession assistance PAA, there
was only EUR 3.8 million paid for CARDS in 2013. With regard to the current
pre-accession instrument IPA, a total EUR 804.5 million
euros paid in 2013. Table PA1 presents payments made for
IPA and PAA in financial year 2013 compared to 2012.[39]
Table PA1 –
Payments made for IPA and PAA, comparison 2012 and 2013
5.2.        General
analysis – Trend analysis
5.2.1.     Trend
analysis
Regarding the Pre-Accession Assistance (PAA),
the number of irregularities reported as fraudulent slightly increased in 2013
compared to the previous year. Yet, there is a downward trend since 2009
regarding the related irregular amounts as Table PA2 and Chart PA1 show.
Table PA2 –
Reported irregularities (PAA), 2009-2013
Chart PA1
–Irregularities reported as fraudulent (PAA), 2009-2013
For the total number of irregularities
(reported as fraudulent and not reported as fraudulent) for the PAA, there were
181 irregularities reported in 2013 and the amount affected EUR 59.8 million similarly
to 2012. (In the previous year, there were 214 irregularities and the amount
affected was EUR 50.2 million.) However, a slight increase can be observed
compared to 2012, which is due to the reclassification of some cases
(qualification of the irregularity) of reporting year 2012[40].
In the past five years, most of the irregularities
(reported and not reported as fraudulent) and the highest aggregate amount
concern first Romania and secondly Bulgaria. In relation to the distribution of
irregularities according to funds it can be said that most of the fraudulent
irregularities concern SAPARD, however in terms of non-fraudulent
irregularities the latter is preceded by ISPA.
5.2.2.     Trend
analysis IPA
Generally it can be said that the trend of IPA
reporting (2007-13) has begun to develop in a stable upward curve which means a
continuous increase in the number of irregularities reported and involved
amounts since 2010. The increasing trend can be considered within the norm as
the reporting of irregularities of IPA has only begun in recent years.
Chart PA2 below demonstrates the evolution of
reporting of all the irregularities (reported and not reported as fraudulent)
since 2010.
Chart PA2 –
Reported irregularities (IPA), 2010-2013
During the past few years, the highest number
of irregularities reported as fraudulent was communicated by Turkey followed by Macedonia. The highest fraudulent amounts were recorded in relation to Cross-Border
Cooperation and secondly to Transition Assistance and Institution Building. However, Transition Assistance scores the highest with regard to irregularities not
reported as fraudulent.
5.2.3.     Reporting
efforts
In general the communications received
regarding IPA via IMS are complete and in terms of timeliness the reporting
behaviour is satisfactory. The level of completeness of the reported
information has been improving depending on experience with reporting.
Serbia and Macedonia have reported irregular cases in the IMS system during 2013. The information
provided by these countries is complete and detailed, moreover the
classification of the irregularities is accurate.
Turkey and Croatia have continued the consistent reporting. Croatia increased significantly the number
of reported irregularities since its connection to IMS in October 2012.
5.3.        Specific
analysis – Financial year 2013
5.3.1.     Pre-Accession
Assistance (PAA)
In 2013 a total number of 33 irregularities
were reported as fraudulent with the amount affected of EUR 14.4 million as
Table PA3 demonstrates.
Table PA3 – Reported irregularities per
country (PAA), 2013
These fraudulent irregularities were reported
by Bulgaria and Romania. Regarding irregularities not reported as fraudulent,
it was Romania communicating by far the highest number of cases with EUR 43.7
million amounts affected.
Like in the previous years, the majority of
cases concern again SAPARD in 2013, the Special Accession Programme for Agriculture
and Rural Development.
Table PA4 – Reported irregularities per fund
(PAA), 2013
With 25 irregular fraudulent cases reported and
EUR 13 million involved, the SAPARD fund remains the most fraudulent one among
all the PAA funds, accompanied by PHARE with 8 cases and EUR 1.3 million
affected.
The practices repeatedly employed in committing
fraudulent irregularities are mainly ‘falsified supporting documents’ (45.5% of
the cases and 42.5% of the irregular amounts involved), followed by ‘other
irregular documents’ (37.9% of the cases and 21.1% of the irregular amounts).
With regard to irregularities not reported as
fraudulent, the highest irregular amounts have been reported in relation to
ISPA fund (EUR 33.6 million), followed by SAPARD (EUR 11.2 million). The most
frequent modus operandi are: ‘failure to respect other regulations/contract
conditions’ (55.4% of the cases and 21.5% of the irregular amounts) and
‘Non-eligible expenditure’ (28.4% of the cases and 71.8% of the
irregular amounts).
5.3.2.     Instrument
for Pre-Accession (IPA)
In IPA (2007-13), there were 9 irregularities
reported as fraudulent involving EUR 1.2 million irregular amounts. Tables PA5
and PA6 show the breakdown per country and per fund respectively.
Table PA5 – Reported irregularities per
country (IPA), 2013
In 2013 Turkey reported most of the
irregularities considered as fraudulent (6 cases out of total 9, involving over
one million euros). Turkey was also the country reporting the highest aggregate
amounts involved in irregularities not reported as fraudulent, though the
highest number of such irregularities was recorded by Croatia (19 cases out of
total 39).
Table PA6 – Reported irregularities per fund
(IPA), 2013
Regarding
the modus operandi of irregular cases irregularities reported as fraudulent,
the following can be said: most of the irregular amounts (72.7 %) related to
one single case, where ‘Conflict of interest’ has been identified.
When it comes to other irregularities not
reported as fraudulent, the most frequent practice employed are: ‘Infringement
of rules concerning public procurement’ (concerns 35.9 % of the cases
and only 4.8 % of the irregular amounts), ‘Failure to respect other
regulations/contract conditions’ (concerns 10.3 %cases but concerns 35.2 % of
the irregular amounts) and finally ‘Non-eligible expenditure’ (concerns
28.2 % of the cases and only 10.5 % of the irregular amounts).
5.3.3.     Method
of detection
In 2013, Regarding PAA, most of the irregularities
reported as fraudulent was detected by community controls and associated
controls (in more than half of the cases and over 77% of irregular amounts).
Additionally, interservice cooperation proved to be the second most frequent
method of detection of such irregularities (in around 20% of cases and 36% of
irregular amounts). This finding is underlining the importance of audits
performed by responsible Commissions services and investigations conducted by
OLAF.
In case of IPA, over 80% of the total number of
irregular cases reported in 2013 was detected by national administration.
5.3.4.     Recovery
for the Pre-Accession Assistance (PAA)
The table PA7 demonstrates the recovery
situation per country in the PAA. It provides an overview for years between
2003 and 2013 of the recoveries: amounts still to be recovered and the
cumulative recovery rate[41].
Table PA7: Recovery by beneficiary country (PAA), cumulative results,
2003-2013
As it appears from the above table, the
recovery of irregular amounts is not yet completed. The overall cumulative
recovery rate for irregularities reported as fraudulent is 29.22%, which is
lower than in the case of irregularities not reported as fraudulent (37.36%). The
figures do not take into account the recoveries and financial corrections made
by the Commission.
Section III – Centralised
Management 
6.           Direct
Management
6.1.        Introduction
This chapter contains a descriptive analysis of
the data on recovery orders issued by Commission services in relation to
expenditures managed under ‘direct management’ mode, which is one of the three
implementation modes the Commission can use to implement the budget.
According to the Financial Regulation[42], ‘direct management’
means that the Commission implements the budget by its departments, including
its staff in the Union Delegations under the authority of their respective Head
of Delegation, or through executive agencies.
For financial year 2013, a total of EUR 14.6
billion[43]
has been effectively disbursed under the ‘direct management’ mode. Table DM1
presents the actual payments made in financial year 2013 for the nineteen
policy areas corresponding to 98% of the overall payments made under ‘direct
management’.
Table DM1 –
Payments made in financial year 2013 per policy area
6.2.        General
analysis
In 2013, for the nineteen policy areas, the
Commission services registered 2245 recovery orders in ABAC that were qualified
as irregularities for a total financial value EUR 81.9 million. Among these
recovery orders, 25 have been reported as fraudulent[44], involving EUR 1.2
million irregular amounts.
6.2.1.     Five
year analysis 2009-2013
As a trend analysis, the comparison between
five years, from 2009 to 2013 will be hereunder provided. This is the first
five years that can be compared as the ABAC recovery context was only set up in
2008. Nonetheless, it has to be noted that such a comparison will only serve as
a snapshot of data gathered in those five years, rather than to point out to
any evolution or prediction of future trends.
Generally it can be said that in the past five
years, the number and related financial value of irregularities reported as
fraudulent have steadily decreased, meanwhile the number and related amounts
regarding recovery orders qualified as irregularities not reported as
fraudulent firmly increased. At the same time, the expenditure under the direct
management mode[45]
remained stable: around 14 billion euros are effectively disbursed each year.
As a consequence, the ratio between irregular amounts recovered and payments
made has also increased. Table DM2 and DM3 summarise these figures for
irregularities during the five-year term.
Table DM2 –
Irregularities not reported as fraudulent and related amounts, financial years
2009-2013
Table DM3 –
Irregularities reported as fraudulent and related amounts, financial years
2009-2013
The ABAC system shows that there were over ten
thousand registered irregularities (not reported as fraudulent) with a total
financial value of exactly EUR 315 million. This total irregular amount, when
compared to the reference figure of the total payments of the same five years
(over EUR 72 billion) , gives the overall irregularity detection rate of less
than half percent (0.44%). As far as the irregulartites of fraudulent nature
(irregularities reported as fraudulent) are concerned, this fraud detection
rate is close to zero (0.02%), which is calculated on the basis of a total of
257 recoveries with related amount of EUR 17 million. The registered
irregulariy figures demonstrate the efficient irregularity detection and
reporting systems in place.
6.3.        Specific
analysis
6.3.1.     Recoveries
according policy areas
Table DM4 provides a more detailed
classification of the policy areas and related irregularities with financial
values for year 2013.
Table DM4 –
Irregularities reported by policy areas and related amounts, 2013
In financial year 2013, the highest number of
'irregularities reported as fraudulent' was recorded in the ‘External
relations’ area, however in terms of irregular amounts, the policy field
‘Development and relations with ACP States’ scored with half a million euros.
This policy area alone counts for almost the half of fraudulent amounts
recovered.
Regarding 'irregularities not reported as
fraudulent', most of the irregularities were registered in the area of
‘Information society and media’ to which the second highest aggregate irregular
amounts is linked. This year, the 'Mobility and transport' policy area appears
to have recorded the biggest aggregate non-fraudulent irregular amounts. This
policy field, together with ‘Information society and media’ and ‘Research’
counts for more than half of the total irregular amounts for 2013.
When looking at the five year perspective as
presented by table DM5, one can perceive that ‘External relations’ policy field
has the highest fraud detection rate (0.09%). The same policy field counts for
more than half of the fraudulent amounts recovered. The second largest
aggregate fraudulent amounts were recovered in the fields of ‘Development and
relations with ACP States’ and ‘Information society and media’.
Regarding 'irregularities not reported as
fraudulent', policy area ‘Home Affairs’ stands out with the highest
irregularity detection rate (1.72%). This means that the ratio of the total
irregular amounts and the effective payments was the highest in this policy
field. It is followed ‘Information society and media’ and ‘Education and
culture’. Nonetheless, the highest aggregate non-fraudulent irregular amounts
were recorded in the field ‘Information society and media’, secondly in
‘External relations’ and thirdly in ‘Research’. These three policy areas
account for half of the total irregular amounts recovered during the five
years.
Table DM5 –
Irregularities reported by policy areas and related amounts, financial years
2009-2013
It can also be said that some policy areas
registered increasing irregular amounts over the five years. These are notably
the following: ‘Information society and media’, ‘Research’, ‘External
relations’ and ‘Education and culture’. Additionally, policy fields
‘Development and relations with ACP States’, ‘Mobility and transport’ and ‘Home
affairs’ have been fluctuating around the average. The remaining 12 policy
areas remained always below the average irregular amounts recorded for the year
concerned.
Yet, it has to be reiterated that the
explanation for the relatively high number of irregularities resides in the
fact that Commission services duly detect and keep record of these cases in
ABAC.
6.3.2.     Recoveries
according to legal entity residence
In 90% of the irregular cases (reported as
fraudulent and not reported as fraudulent together) corresponding to a total
83% of irregular amounts, the legal entity was resident in one of the 28 Member
States of the European Union[46].
It should be noted however, that the residence of the legal entity is not
necessarily the same as that of the main beneficiary.
Table DM6 summarizes the recoveries made
according to the legal entity country to which the payment was unduly disbursed
between 2009 and 2013. EU Member States are listed, other countries are grouped
under the ‘non-EU’ category.
Table DM6 –
Recoveries per country of residence of the legal entity, 2009-2013
6.3.3.     Method
of detection
For each recovery order, the Commission service
that issues the order has to indicate how the irregularity has been detected.
Six different categories have been pre-defined, two of which fall under the
direct responsibility of the European Commission: On-the-spot checks and the
verification of documents by desk officers and financial officers responsible
for the implementation of the commitment. Table DM7 gives a breakdown of the
recoveries by source of detection and by qualification. As there are no
significant fluctuations form one year to the other, the below table presents
the five year totals.
Table DM7 –
Irregularities reported by source of detection and by qualification, 2009-2013
OLAF detected the vast majority of the cases
qualified ‘irregularities reported as fraudulent’: 42.4% of recoveries account
for 44.7% of the total irregular amounts. This figure, however, depends on the
closure of investigations. It may increase over time, as some irregularities
categorised as ‘not reported as fraudulent’ can be turned to ‘reported as
fraudulent’ after the outcome of on-going investigations.
In the past five years, most of the cases
‘irregularities not reported as fraudulent’ were detected through ‘Community
controls’ (on-the-spot checks and desk checks of documents). All together 65.6%
of recoveries representing 78.0% of total irregular amounts were detected by
‘Community controls’.
6.3.4.     Types
of error
The Commission services also have to indicate
the type of error that was detected when the recovery order was issued. Several
types of error can be attributed to one irregular case. Largely it can be
observed that error ‘Action not in accordance with the rules’ and error
‘Expenditure not covered by the legal base’ appear most frequently every year, (reported
as fraudulent or not) during the past five years. Besides, ‘Missing documents’
and ‘Action not implemented’ are the third most frequent error types.
6.3.5.     Time
delay
For the recovery orders qualified as
irregularities (both reported as fraudulent and not reported as fraudulent) issued
between 2009 and 2013, the average delay between the occurrence of the
irregularity and its detection is 3.4 years. However, the time delay varies
significantly, so the average does not represent the series. More than half of
the cases (54%) were detected within 4 years following the year when the irregularity
was committed; meanwhile in the other half (46%) of the cases the delay varied
between 4 and 13 years.
6.3.6.     Recovery
This paragraph describes the payments made to
the Commission further to the issuing of the recovery orders. Once a recovery
order is issued, the beneficiary is requested to pay back the amount unduly
received or the amount is offset from remaining payments for the beneficiary.
For the recovery orders issued in 2013, 78.1%
of the total irregular amounts have been recovered. This means that is EUR 64.0
million (out of EUR 81.9 million) has already been cashed. Yet there are differences
between the recovery rates for irregularities reported as fraudulent and those
not reported as fraudulent. The recovery rate for irregularities reported as
fraudulent is only 23.1% and it is always lower than that of the irregularities
not reported as fraudulent when looking at the five year period.
In a five year perspective, the recovery rates
are the following: for irregularities reported as fraudulent it is 54.4% and
for non-fraudulent irregularities it is 63.9%, meanwhile the overall recovery
rate for all the irregularities is 63.4%.
COUNTRY FACTSHEETS
Belgium
Bulgaria
Czech Republic
Denmark
Germany
Estonia
Irland
Greece
Spain
France
Croatia
Italy
Cyprus
Latvia
Lithuania
Luxembourg
Hungary
Malta
Netherlands
Austria
Poland
Portugal
Romania
Slovenia
Slovakia
Finland
Sweden
United Kingdom
ANNEXES 
ANNEX 1
ANNEX 2
(The number of irregularities reported as
fraudulent measures the results of efforts by Member States to counter fraud
and other illegal activities affecting EU financial interests; it should not be
interpreted as the level of fraud in their territories)
ANNEX 3
ANNEX 4
ANNEX 5
ANNEX 6
ANNEX 7
ANNEX 8
ANNEX 9
ANNEX 10
ANNEXES 11-15
Legenda
IRQ0: cancelled communication
IRQ2: Irregularities not reported as fraudulent
IRQ3: suspected fraud
IRQ5: established fraud
ANNEX 11
Irregularities
reported in 2013 under Regulation 1848/2006 by Member State
(The
number of irregularities reported as fraudulent measures the results of efforts
by Member States to counter fraud and other illegal activities affecting EU
financial interests; it should not be interpreted as the level of fraud in
their territories)
ANNEX 12
Irregularities
reported in 2013 under Regulation 498/2007 by Member State
(The
number of irregularities reported as fraudulent measures the results of efforts
by Member States to counter fraud and other illegal activities affecting EU
financial interests; it should not be interpreted as the level of fraud in
their territories)
ANNEX 13
Irregularities
reported in 2013 under Regulation 1681/1994 by Member State
(The
number of irregularities reported as fraudulent measures the results of efforts
by Member States to counter fraud and other illegal activities affecting EU
financial interests; it should not be interpreted as the level of fraud in
their territories)

ANNEX 14
Irregularities
reported in 2013 under Regulation 1831/1994 by Member State
ANNEX 15
Irregularities
reported in 2013 under Regulation 1828/2006 by Member State
(The
number of irregularities reported as fraudulent measures the results of efforts
by Member States to counter fraud and other illegal activities affecting EU
financial interests; it should not be interpreted as the level of fraud in
their territories)
[1]               This document does not represent an official position
of the Commission.
[2]     For
comparability reasons, the figures for the 2008-2012 period are based on the
data used for the reports of those years.
[3]     Cases with an established amount of TOR
exceeding EUR 10 million.
[4]     For
comparability reasons, the figures for 2008-2012 are based on the data used for
the reports of those years.
[5]     20 % based on the data used in the
2008 report.
[6]     For comparability
reasons, the figures for 2008-2012 are based on the data used for the reports
of those years.
[7]     See Annex 4.
[8]               For
comparability reasons the figures of 2008-2012 are based on the data used for
the reports of those years.
[9]               See Annex
5.
[10]             This calculation is based on 79 711 cases, an established amount of EUR 5.7 billion and
a recovered amount of EUR 3.2 billion.
[11]             See Annexes
6 and 7.
[12]             See Annexes
8 and 9.
[13]             Combined
nomenclature or CN –nomenclature of the Common Customs Tariff.
[14]             See Annexes
6 and 7.
[15]             See Annexes
8 and 9.
[16]             The Czech Republic, Estonia, Cyprus, Hungary, the Netherlands, Austria, Poland, Slovakia, Sweden and the United Kingdom.
[17]             Estonia, Luxembourg, Slovakia and Sweden.
[18]             The Czech Republic (5 %), Germany (5 %), Cyprus (6 %), the Netherlands (4 %),
 Portugal (5 %) and the UK (2 %).
[19]             Greece (100 %), Croatia (63 %),
 Italy (50%), Cyprus (50%), Latvia
(58 %), Lithuania (51 %)
and Malta (100 %).
[20]             See Annex
4.
[21]             See Annex
4.
[22]             This calculation is based on 15 517 cases, an established amount of EUR 1.74 billion
(after already processed corrections) and a recovered amount of EUR 0.5
billion.
[23]             See Annex
10.
[24]             On the
cut-off date, for years 2008-2012, the annual RR for fraud cases varied between
21 % and 58 %.
[25]             See Annex
10.
[26]             This calculation is based on 64 194 cases, an established amount of EUR 4.0 billion
(after already processed corrections) and a recovered amount of EUR 2.66
billion.
[27]             Case
C-392/02 of 15/11/2005. 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 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 Customs Code giving rise to
legitimate expectations on the part of an operator.
[28]             For a description of the methodology used for assessing
the complexity of irregularities reported as fraudulent, consult the Commission
Staff Working Document on the ‘Methodology regarding the statistical
evaluation of reported irregularities for 2013’.
[29]             Judicial
authorities performed searches on the premises of involved persons in 2003,
first in Belgium, and later on in other Member States including the Netherlands, which reported it in 2013 due to the secrecy of the penal procedure, which was
levied at that date. The case represents an anomaly not caused by flaws in the
Dutch system of control and financial management.
[30]             For the analysis of irregularities reported in relation
to the Financial Instrument for Fishery Guidance (FIFG) related to the
programming period 2000-06, see chapter 5 on the Cohesion Policy.
[31]             For a description of the methodology used for assessing
the complexity of irregularities reported as fraudulent, consult the Commission
Staff Working Document on the ‘Methodology regarding the statistical
evaluation of reported irregularities for 2013’.
[32]             The report reflects situation as of 2012. In June 2013 Iceland's Foreign Minister Gunnar Bragi Sveinsson informed the European Commission that the
newly elected government intended to "put negotiations on hold".
[33]             Turkey has been receiving pre-accession assistance
since 2002.
[34]             Albania, Croatia, FYROM, Serbia, Kosovo under United
Nations Security Council Resolution 1244, and Bosnia Herzegovina, Council
Regulation (EC) No 2666/2000 of 5 December 2000.
[35]             The EU-10 that joined European Union in 2004 received a
Transition facility during 2004-2006. However the EU-2 received a Transition
facility in 2007 which is regarded as a post-accession assistance.
[36]             Potential candidate countries were defined at the Santa Maria da Feira European
Council of 20 June 2000.
[37]             Following the entry into force of the Treaty of Lisbon,
Delegations have become a part of the European External Action Service, with
effect from 1 December 2010.
[38]             2012 Annual Activity report, DG ENLARGEMENT
[39]             Based on own calculation, ABAC data taking into account
operational expenditure for budget title 22.
[40]             There were 2 cases in Bulgaria and one case in Romania that were reclassified (from suspicion of fraud into no irregularity) regarding the
reporting year 2012. The requalification of these three irregularities affected
the irregular amounts involved (reported as fraudulent) and subsequently caused
a decrease of EUR 37.7 million in the total figure for financial year 2012,
compared to what was published in the previous PIF 2012 Report.
[41]             The cumulative recovery rate is the percentage of the
total irregular amounts that has successfully been recovered.
[42]             The
Financial Regulation provides for three types of management, one of them is the
centralised management. In accordance with Article 58 (Methods
of implementation of the budget) of the Council
Regulation (EU, Euratom) No 966/2012 and Commission Delegated Regulation (EU)
No 1268/2012.
[43]             Own calculation based on ABAC
data for the nineteen policy areas representing 98% of payments under the direct
management mode, excluding administrative expenditure.
[44]             Recovery
orders that have been qualified by the Commission services as suspected
fraud and subsequently reported to OLAF, or recoveries made following to
OLAF investigation.
[45]             Only the nineteen policy areas - listed in table DM1 -
are taken into account.
[46]             Croatia is taken into account as the 28th Member State of the EU throughout the past five years although it became member of the Union only on 01/07/2013.