Select Committee on European Scrutiny Twenty-Seventh Report





SEC(01) 2029

Communication relating to the fraud-proofing of legislation.

Legal base:


Document originated

1 February 2002

Deposited in Parliament:

26 February 2002


HM Treasury

Basis of consideration:

EM of 7 March 2002

Previous Committee Report:


To be discussed in Council:

Date not known

Committee's assessment:

Politically important

Committee's decision:





  21.1  One of the objectives of the White Paper on Commission reform, published on 1 March 2000, was to develop a culture of fraud prevention, including a means of protecting the Community's financial interests by strengthening and fraud-proofing basic legal instruments. 'Action 94' of the White Paper states that:

"To render the present system of fraud-proofing more effective, Commission services will be required, when proposing new legislation with a potential impact on the Community budget, to submit draft proposals to OLAF [the European Anti-Fraud Office] for a risk assessment during inter-service consultations. DG [Directorate General] Budget will be assisted by OLAF in the review of the Commission's systems for contract management (eg standard contracts, central contracts database, management tools). OLAF will also provide advice on fraud-proofing throughout the legislative process."

The document

  21.2  This document contains the Commission's proposals to set up procedures and tools to improve fraud-proofing of both legislation and contracts. As regards fraud-proofing of legislation, the Commission says that this will be achieved by requiring Commission Directorate-Generals to consult a new Fraud-Proofing Unit in OLAF. In her Explanatory Memorandum of 7 March 2002, the Economic Secretary to the Treasury (Ruth Kelly) outlines the Commission's proposed four phases of this work:

"Phase I OLAF will identify the criteria necessary to identify those sectors which are at a higher risk of fraud or irregularity. It will use material already available such as audit reports, and cases reported in the annual fight against fraud reports. It will also consider the numbers of checks and controls carried out in each budget sector.

"Phase 2 A specific working group (chaired by OLAF, to include representatives of the Secretariat-General, the Legal Service, DG Budget, DG Financial Control and the Internal Audit Service) will consider OLAF's initial findings and criteria and use these to identify sectors and areas of activity considered to be high-risk.

"Phase 3 OLAF and the working group will liaise with specific Directorate-Generals to identify draft legislation in high-risk sectors which needs to be examined by OLAF.

"Phase 4 Consultation of OLAF by Directorates-General on specific draft legislation, including the drafting of anti-fraud provisions if necessary."

  21.3  The Minister adds that:

"OLAF will, however, not be bound by this procedure — inter-service consultation under Article 21 of the Commission's Rules of Procedure will enable it to intervene in all relevant cases (i.e. it may ask for legislation not necessarily identified under the above procedure to be referred for fraud-proofing)."

  21.4  As regards fraud-proofing of contracts, the Commission intends to create a central database of contracts and contractors, and wherever possible to establish standard contracts. Directorate-Generals will be able to use the database to check the background and record of particular contractors. OLAF and the Commission's Legal Service will be involved in defining and drafting clear fraud-proofing clauses. New standard contracts will be proposed, subject to inter-service consultation. OLAF will also submit information to the central contracts database on contract fraud and irregularities it has investigated.

  21.5  The Minister adds that, in addition, the Commission proposes awareness and training campaigns in order to provide information on the risks of fraud associated with complex legislation. OLAF will produce a manual, and participate in training modules. Precise guidelines on the management of contracts will also be supplied.

The Government's view

  21.6  The Minister comments:

"The Government has always pressed for the need for simplification and fraud-proofing of Community legislation. This is an important preventive method of reducing fraud and irregularity against the Community budget. Many irregularities are the result of over-complex legislation and it is vital to work to produce simpler and tighter legislation, in order to protect the Community s financial interests.

"This will be an important aspect of the work of OLAF, but it must be remembered that results as in a reduction of the numbers of frauds and irregularities detected will not be achieved overnight. The Commission's proposals are sensible, but it is regrettable that there is no indication of the likely timescales for the setting-up of the new procedures and the contracts database. The Government will press OLAF and the Commission to keep this important work on course within a reasonable period of time."


  21.7  We welcome further moves towards a tougher regime against fraud. However, like the Government, we are disappointed that the Commission has not provided any timescale for the setting up of the new procedures and database. That omission suggests little sense of urgency. For our part, we will follow the implementation of the proposals with interest. Meanwhile, we are content to clear this report.


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