Documents considered by the Committee on 3 November 2010, including the following recommendations for debate: Financial Management - European Scrutiny Committee Contents


1 Financial management


(a)

(31822)

12393/10

+ ADDs 1-2

COM(10) 382

(b)

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13075/10

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COM(10) 447

(c)

(31952)

Commission Report: Protection of the Communities' financial interests: Fight against fraud: Annual Report 2009










Commission Report: Annual Report to the discharge report on internal audits carried out in 2009 (Article 86(4) of the Financial Regulation)









European Anti-Fraud Office: Annual Report 2010: Tenth activity report, 1 January to 31 December 2009

Legal base(a) - (c) —
Document originated(a) 14 July 2010

(b) 31 August 2010

(c) —

Deposited in Parliament(a) 22 July 2010

(b) 7 September 2010

(c) 21 September 2010

DepartmentHM Treasury
Basis of consideration(a) EM of 22 October 2010

(b) EM of 6 October 2010

(c) EM of 22 October 2010

Previous Committee ReportNone
To be discussed in Council(a) Possibly

(b) and (c) None planned

Committee's assessmentPolitically important
Committee's decisionFor debate in European Committee B, together with the European Court of Auditors' Annual Report for 2009, once available

Background

1.1 The Commission is required to report annually on protection of the EU's financial interests and on the fight against fraud, a shared responsibility between the Commission and Member States. These reports are to cover measures taken by Member States as well as by the Commission. Each year, the Commission, in cooperation with Member States, reports latest statistics on, and recent measures to reduce, irregularities and fraud. There is an important distinction between irregularities and fraud. An irregularity occurs when a beneficiary is not in compliance with the EU rules and requirements linked to the spending of EU funds, and these are usually the result of genuine errors. Fraud is a deliberately committed irregularity, which constitutes a criminal offence.

1.2 The Commission's Internal Audit Service is required to submit an annual report to the Discharge Authority (the European Parliament and the Council). The Director of the European Anti-Fraud Office (commonly referred to as OLAF, from its French title) is required to make regular reports to the European Parliament, the Council, the Commission and the European Court of Auditors (the Court) "on the findings of investigations carried out", as stipulated in the Regulations establishing the office in 1999. OLAF's objectives are to reduce fraud, corruption, and other illegal activities against the financial interests of the EU by conducting investigations, strengthening anti-fraud measures and developing strategies to prevent fraud through better intelligence, training and cooperation with Member States.

The documents

1.3 Document (a) is the Commission's annual report for 2009 on protection of the Communities' financial interests and on the fight against fraud. This year's report includes two special topics relevant to the EU institutions and national competent authorities (contributed by Member States via a questionnaire):

  • cooperation between the Commission and the Member States concerning on-the-spot checks; and
  • measures taken by the Member States to recover irregular amounts.

1.4 The report is in five sections. The first has statistics on fraud and other irregularities and covers results of irregularities relating to:

  • areas where Member States implement the budget (agricultural policy, cohesion policy and pre-accession funds) and collection of the EU's Traditional Own Resources;
  • expenditure directly managed by the Commission; and
  • operational activities of OLAF.

EU legislation requires Member States to notify the Commission of fraud and irregularities by fields of activity where they implement the budget and receive the EU's Own Resources. However, the statistics presented must be read and used with great care, as they are approximate and preliminary only.

1.5 The headline message for 2009 in this section is that:

  • the overall number of irregularities for expenditure increased to 7,963 in 2009 from 6,595 in 2008; and
  • the estimated financial impact of irregularities increased from €783 million (£678 million) in 2008 to €1,493 million (£1,293 million) in 2009.

For Traditional Own Resources, that is customs duties and agricultural levies:

  • reported irregularities were 23% down on 2008, falling from 6,075 to 4,684;
  • the estimated financial impact was lower at 8.5%, from €375 million (£325 million) to €343 million (£297 million) in 2009;
  • suspected fraud accounted for approximately 19% of reported cases, with an estimated financial impact of €99 million (£86 million);
  • fraud is therefore suspected for 0.68% of total Traditional Own Resources collection; and
  • the goods mostly affected by irregularity remain the same — TVs, monitors, clothing and tobacco products.

1.6 On the expenditure side 2009 is a transition year due to the introduction of an internet based reporting system, the Irregularity Management System. The system experienced some initial problems, but has improved the ease of irregularity reporting for those Member States that used it. The overall irregularity rate in the UK is 0.08%. This is an extremely low percentage especially as the Commission uses a 2% materiality rate for Structural Funds — some ten times higher than the reported fraud rate.

1.7 The section has analysis of four major headings on the expenditure part of the EU budget:

Agriculture

  • reported irregularities increased 43% (1,621 cases in 2009 compared to 1,133 in 2008) with an estimated financial impact of €125 million (£108 million), an increase of 23%;
  • the sectors with rather high irregularity rates were sugar, pig meat, eggs and poultry, cereals, rural development and fruit and vegetables;

Cohesion Policy

  • reported irregularities increased 23% (4,931 cases in 2009, compared with 4,007 in 2008) with an estimated financial impact of €1,223 million (£1,059 million), an increase of about 20%;
  • the increase mostly reflects: the result of three different reporting programming periods (1994-99, 2000-6 and 2007-13), growing influence of irregularities reported in Romania and Bulgaria and increased checks and audits linked to the approaching closure of the 2000-06 programming period — as this is being drawn to a close and full review of the programmes is being carried out, this housekeeping exercise will have contributed to the increase in the irregularity rates;
  • the highest irregularity rates were found in the European Regional Development Fund and Objective 2 programmes (aimed at revitalising areas facing structural difficulties);

Pre-accession funds

  • 706 irregularity cases were reported for this sector with a financial impact of €117 million (£101 million), an increase of 35% on last year;
  • reported irregularities by Bulgaria and Romania together accounted for 81% of cases and 9% of the irregular amounts reported;
  • five Member States (Bulgaria, Hungary, Poland, Romania and Slovakia) and Turkey reported 262 suspected fraud cases with a financial impact of €57 million (£49 million);
  • the highest number of cases was reported by Bulgaria for its Special Accession Programme for Agriculture and Rural Development (SAPARD) fund (67% of its total allocation, reflecting 92% of all SAPARD suspected fraud cases in 2009);

Direct Expenditure (funds managed by the Commission)

  • irregularities and suspected fraud cases in this area came to 705 with a presumed financial impact of €27.5 million (£24 million), €1.5 million (£1.3 million) of which related to 15 cases of suspected fraud; and
  • irregularities in the external action sector accounted for €4.4 million (£3.8 million) and €23.1 million (£20 million) was recorded for the internal policies area.

1.8 The statistics on OLAF's activities show that in 2009 it opened 220 cases, compared with 204 in 2008 and 201 in 2007. The number of its active cases increased to 455 at the end of 2009, compared with 425 at the end of 2008.

1.9 The second section of the document concerns the international dimension to protecting the EU's financial interests, including an update on the state of ratification of the Protection of Financial Interests[1] instruments and international agreements and multilateral conventions. The protection of the EU's financial interests and the fight against fraud and corruption go beyond EU borders and needs to be reflected in international agreements with third countries or in multilateral conventions. Anti-fraud and corruption provisions are included in many bilateral agreements which the EU has signed with third countries. In 2009:

  • the Commission negotiated the conditions for the implementation of the United Nations Convention against Corruption and was an active participant in the activities of the European anti-corruption network, which was created by the Council in 2008;
  • the EU has been at the forefront internationally in tackling tax havens and tax fraud — the Commission works to promote the principles of good governance in tax matters worldwide and has worked closely with the Organisation for Economic Cooperation and Development in this field;
  • an anti-fraud agreement with Liechtenstein, which could serve as a model for similar agreements with other third countries, has been negotiated and currently awaits agreement by Member States in the Council;
  • the Commission has asked the Council for a mandate to negotiate similar agreements with Switzerland, Andorra, San Marino and Monaco;
  • the Commission is negotiating with Ukraine on a new and comprehensive agreement, within the European Neighbourhood Policy, to tackle fraud and to protect the EU's financial interests;
  • the Commission continues to play a leading role in the negotiations on a protocol to eliminate illicit trade in tobacco products, based on the World Health Organisation Framework Convention on Tobacco Control;
  • the second Protocol to the Convention on the Protection of the EU's Financial Interests, which contains provisions on the liability of legal persons, confiscation and money laundering, entered into force on 19 May 2009 after ratification by the Member States concerned;[2]
  • Hungary ratified the Convention and its protocols[3] on 18 January 2010 with a single declaration concerning the protocol on the interpretation of the Convention by the European Court of Justice;
  • Estonia has yet to ratify this latter protocol;
  • the Czech Republic and Malta remain the only Member States that have not yet ratified either the Convention on the Protection of the EU's Financial Interests or its protocols; and
  • with regard to the follow-up of the second report on implementation by the Member States of these instruments,[4] the Commission has engaged in further analysis on the conformity of national provisions in Austria, Belgium, France, Germany, Ireland, Italy and Luxembourg — the Member States were urged to proceed with the ratification of these legal instruments without delay.

1.10 The third section of the Commission Report concerns recent administrative measures taken by the Commission to fight fraud and irregularities in the customs area. Further progress was achieved in a joint customs operation and with deployment of a new improved customs database:

  • the joint custom operation DIABOLO II conducted in the framework of ASEM (Asia — Europe meeting),[5] led to the seizure of 65 million counterfeit cigarettes and 369,000 other counterfeit items (shoes, bags, toys, cameras etc) of numerous trademarks;
  • the success of the operation was due to the cooperation and effective work that involved customs officials from thirteen Asian countries and the twenty seven Member States; and
  • the objective of FIDE (Customs Files Identification Database), a new database used by Member States' customs authorities, is to help in preventing operations in breach of customs and agricultural legislation and to facilitate and accelerate their detection and prosecution.

1.11 The content of the fourth section of the Report is the results of a questionnaire on cooperation between OLAF and the Member States regarding on-the-spot checks. Inspections and on-the-spot checks are used by the Commission to conduct administrative investigations outside the EU Institutions and bodies, as empowered by Council Regulation (Euratom, E.C.) No 2185/96. Active participation of national authorities and the assistance provided to OLAF inspectors are therefore essential in guaranteeing the success of an operation. In 2009, the Commission circulated a questionnaire to Member States with regard to their cooperation with OLAF on inspections. Following the exercise, the Commission concluded that Member States have taken a number of measures to consolidate the implementation of the Regulation:

  • national legislation grants inspectors full access to information and documentation concerning operations;
  • in cases where the operator is the beneficiary of an EU grant, the obligation to provide access to documentation and information is specified in the grant contract and thus constitutes an important precautionary measure;
  • national procedural requirements for on-the-spot checks and for drawing up administrative inspection reports are provided in form of manuals and instructions to the national inspectors;
  • in cases of opposition to checks by an economic operator, certain Member States indicated that the Commission inspectors may enter premises without prior consent;
  • in those cases where checks are hampered, Member States' competent authorities provide assistance to the Commission inspectors by issuing a judicial or administrative warrant or assist as necessary with reasonable force, to access the premises of the economic operator.

However, the Commission believes that, in practice, further improvements can still be made to enhance the cooperation between OLAF and the Member States and outlines some recommendations which it will monitor and comment on in future reports.

1.12 The fifth, and final, section of the Report deals with recovery of funds. The Commission says that:

  • Member States were asked in the questionnaire on cooperation about measures for securing the recovery of irregular amounts;
  • responses showed that all Member States had provisions in their national law for securing the recovery of irregular amounts;
  • in a Resolution of 24 April 2009,[6] the European Parliament noted that recovery rates were still low and that more appropriate and faster recovery procedures were needed together with binding and precautionary elements in future legislation concerning shared management; and
  • the Commission recommends that Member States' legislation prioritise enforceability of recovery orders to help in speeding up recovery procedures and provide for legal instruments such as the different types of guarantees, promissory notes, security deposits, personal or joint sureties, offsetting, bank bonds, mortgages or insurance to secure the recovery of irregular payments included in contracts involving EU funds.

1.13 In this section the Commission notes, and comments on, recoveries made in 2009 for each sector of the budget:

Own Resources

  • only 44%, or €152 million (£132 million), of the amount scheduled for recovery has been recovered;
  • when non-recovery of an established debt is not attributable to a Member State, it may request that the irrecoverable amount be written off — in 2009 the Commission refused Member States' write-off requests in 61 cases totalling €11.5 million (£10 million), because it deemed that non-recovery was attributable to them;
  • additionally, some Member States were held financially responsible for a total of more than €9 million (£7 million), because they did not establish customs debts where they should have done;

Agriculture

  • Member States recovered €167.3 million (£145 million) and declared €64 million (£55 million) as irrecoverable;
  • €1,136.2 million (£984 million) still remained outstanding at the end of 2009;
  • to expedite clearance of outstanding amounts, in 2009 the "50/50 mechanism"[7] was applied to all pending non-recovered cases dating from 2004 or 2000 (cases that were four or eight years old respectively);
  • as a result, €31.4 million (£27 million) was charged to the Member States and €20.1 million (£17 million) was borne by the EU budget due to irrecoverability;
  • a further €0.8 million (£0.7 million) was charged to the Member States by a subsequent decision that cleared the accounts for the financial year 2008 for those paying agencies that were excluded in April 2009;
  • the financial consequences of non-recovery for cases dating from 2005 or 2001 were determined in accordance with the same mechanism by charging €22.8 million (£20 million) to the Member States concerned;
  • €20.3 million (£18 million) was borne by the EU budget for cases reported irrecoverable during the financial year 2009;
  • for those paying agencies for which the 2009 accounts were excluded from the financial clearance decision, a further €11.9 million (£10.3 million) will be charged by subsequent Commission decisions;

Cohesion Policy

  • because Structural Funds are multi-annual in nature and based on interim payments, recovery of unduly paid amounts can take place before or after the conclusion of a programme and can also be deducted from future payment claims;
  • for the 1994-99 programming period 11,046 cases (21 in 2009) of irregularities were reported with a financial impact estimated at €1.51 billion (£1.3 billion) (€1.84 million (£1.6 million) for 2009);
  • of these cases 7,049 have been closed definitively at Commission level and €742 million (£643 million) was taken into account during the final payment or decommitted after closure or reimbursed to the EU budget;
  • administrative and judicial procedures have been finalised at national level in a further 566 cases with a financial impact of €52 million (£45 million);
  • for the 2000-06 programming period 20,991 cases of irregularities were communicated (4,679 in 2009) with a financial impact of around €3.49 billion (£3.02 billion) (€1.12 billion (£0.97 billion) for 2009);
  • administrative and/or judicial procedures have been finalised at national level for 10,655 of these cases with €1.73 billion (£1.5 billion) recovered;
  • at the end of 2009 the total amount of financial corrections concerning the 1994-99 and 2000-06 programming periods was €2,510 million (£2,174 million) (€515 million (£446 million) in 2009) and €5,119 million (£4,433 million) (€1,806 million (£1,564 million) in 2009) respectively;
  • these figures were the results of audits by the Commission and the European Court of Auditors, OLAF investigations and the closure procedures for the two programming periods;

Pre-accession funds

  • the amount scheduled to be recovered increased by 135%, with the highest from SAPARD, €61.6 million (£53 million), out of which €41 million (£36 million) has to be recovered by Bulgaria, assistance for restructuring economies (PHARE), almost €7 million (£6 million) from Poland and Hungary, and the Instrument for Structural Policies for Pre-Accession (ISPA), €4 million (£3 million);
  • the recovery rate decreased in comparison to 2008, reaching only 27.2% in 2009 as a result of complex and lengthy nature of the recovery processes for which the Commission believes further safeguard measures (in the form of assets seizure, suspension of payments) should be implemented to ensure recovery still takes place after the final court ruling;

Direct expenditure

  • in the areas where funds are managed directly by the EU institutions, amounts unduly paid are recovered directly by them;
  • during 2009, full or partial recovery was announced in 478 reported cases with €15.5 million (£13 million) recovered;
  • a full amount was recovered for 463 cases, but €12 million (£10 million) in respect of 242 cases remains outstanding;

Recovery following OLAF cases

  • in 2009 OLAF formally closed the financial follow-up procedure for cases worth more than €249.2 million (£216 million); and
  • in total, €137.2 million (£119 million) was recovered in the agricultural sector and €49.1 million (£43 million) in the field of structural funds.

1.14 Two Commission working papers accompany the Report: the first entitled "Implementation of Article 325 TFEU (5) in 2009 by the Member States" and the second "Statistical Evaluation of Irregularities in 2009".

1.15 Document (b) is the Commission's annual report, for 2009, to the Discharge Authority on internal audits carried out that year. The document summarises the audits carried out and the findings made by the Internal Audit Service. Details of the objectives and scope of each audit and statistics showing the number of recommendations accepted by those audited are in the accompanying staff working document.

1.16 In 2009 the Internal Audit Service carried out 67 audits and reviews. In all, 260 audit recommendations were made, 257 (98.8%) were accepted and 3 (1.2%) rejected. Findings were summarised under the following headings:

  • business continuity;
  • risk management;
  • procurement and grant management;
  • executive agencies;
  • IT issues;
  • shared management;
  • asset management;
  • external policies; and
  • follow-up of earlier audits.

1.17 On the basis of this report, the Internal Auditor of the Commission drew the following conclusions:

  • continuous improvements in the Commission's internal control environment, linked to the efforts towards an unqualified declaration of assurance, were seen — however, there was a need for improvements in certain areas of financial management;
  • progress made since the Commission's adoption of a risk management framework in 2005 was noted, but its implementation needed to be better embedded in the management processes of each service and combined with an enhanced overview of cross-cutting risks and improved central guidance;
  • the Commission needed to keep up the momentum in its efforts to ensure business continuity in the event of serious disruptions (for example, through enhanced steering, coordination and testing of the critical activities); and
  • the audits carried out in the year demonstrated the need to further strengthen IT strategic decision-making and IT project management processes, in order to ensure that IT projects are properly aligned with the Commission's objectives, provide value for money and are completed in a timely manner.

1.18 Document (c) is OLAF's annual report which summarises activities and progress in its tenth business year. In an introduction OLAF notes that:

  • it received 969 new items of information but opened cases on only 220 of these in 2009;
  • €249 million (£216 million) was recovered at the end of 2009; and
  • the report puts a particular focus on four areas — improving operational procedures, fraud prevention and intelligence, EU Agencies and joint customs operations.

1.19 The report itself has four sections. In the first OLAF discusses its role and responsibilities, covering its mission statement and oversight and corporate governance. It then turns to the focus on improving operational procedures and fraud prevention and intelligence. On the former OLAF says that a set of measures were taken to make it more efficient, to further increase the quality of its work and to ensure the optimal use of its limited resources. This resulted in:

  • a de minimis policy was applied to OLAF's operational activities with the adoption of more stringent criteria for opening follow up paths, restricting follow-up to those cases where the financial risk is highest, leaving other cases to other Commission authorities to deal with. OLAF also maintained a "zero tolerance" policy, assessing and, where appropriate, investigating all allegations of corruption within the EU institutions;
  • modified procedures were introduced in 2009 to create clear distinction between active engagements and concluded operational activities, in order to enable debts to be established, notified or recovered, and to the way in which financial recoveries are recorded and reported in order to provide a clearer picture of the true financial impact of OLAF's activities;
  • a new OLAF manual, which provides guidance at every stage of an investigation and sets out the general principles of the rule of law together with the fundamental freedom of individuals under investigation, was issued in 2009; and
  • a new training action plan was implemented and various information and communication activities were launched to raise awareness of the OLAF's role in the fight against fraud and corruption.

1.20 In relation to the focus on fraud prevention and intelligence OLAF says that:

  • in 2009 further emphasis was placed on increased fraud prevention as it continued to implement the Commission's policy of ensuring that all relevant legislation and measures are "fraud-proofed";
  • the approach was aimed at improving the prevention of future irregularities by drawing on the lessons learnt from OLAF's operational experience and sharing such information with those responsible for managing EU funds within and outside the EU; and
  • it provided the necessary support and multi-disciplinary technical know-how to help stakeholders in their anti-fraud activities and provided assistance with respect to specific operations, strategic analysis and risk assessment in order to target resources at the areas prone to risks.

1.21 The second section of the report covers OLAF's key achievements in 2009 by area of activity, illustrated by 14 case studies. The areas of activity were:

  • internal investigations within the EU institutions and bodies;
  • internal EU policies;
  • external aid;
  • structural actions;
  • agricultural expenditure;
  • revenue;
  • cigarettes;
  • focus on joint customs operations — DIABOLLO II; and
  • protection of the euro against counterfeiting.

In relation to a focus on EU Agencies OLAF says that over the past ten years a number of specialised and decentralised EU agencies have been established to support Member States and their citizens in carrying out specific EU missions that may require technical expertise. Based on its operational experience, OLAF identified a number of issues, particularly in the period immediately after the creation of the new agencies, and has been working closely with the Commission departments and with the agencies to ensure adequate training and awareness to prevent further cases of fraud and to detect irregularities. It reports a relevant case relating to systemic weakness found in new agency — a Commission department detected a number of serious irregularities in a newly created EU agency, whereby the separation between professional and private activities was not respected, resulting in EU money being inappropriately used. As for its focus on joint customs operations OLAF says that:

  • illicit trade in contraband and counterfeit tobacco products results in annual losses of approximately €10 billion (£9 billion) to the budgets of the EU and Member States and undermines public health initiatives aimed at curbing smoking;
  • the global nature of the illicit trade means that operational activities are not confined to the EU, but also involve working with authorities in many third countries;
  • in 2009 OLAF coordinated some 35 cigarette-related fraud cases; and
  • one such collaboration, Diabolo II, led to the seizure of more than 65 million counterfeit cigarettes and 369,000 other counterfeit items (shoes, toys, cameras, headphones, hats, caps, gloves, handbags, etc.) representing over 20 different trademarks.

1.22 The third section of the report deals with statistical trends in operational activities in 2009. First discussing incoming information OLAF says that each initial item of information received is subject to a thorough evaluation leading to a recommendation whether a case should be opened or not and, if opened, the type of action required and the priority it should have. Highlights from the evaluation of incoming information in 2009 include:

  • the volume of information received was 969 new items and 740 decisions were taken of these;
  • three sources of information account collectively for about 90% cent of the incoming information — informants 46%, the Commission 30% and Member States 14%;
  • a significant share of new information, 65%, related to suspected fraud in six Member States (Bulgaria, Romania, Germany, Italy, Poland and Spain);
  • the average length of standard evaluations was stable in 2009 at 6.5 months.

1.23 For a active cases OLAF, noting that the active period of a case extends from the time a decision on the opening of investigations or assistance by OLAF has been taken until the time of closure of its operational activity and a final case report is adopted, says that 220 cases were opened and at the end of the year it had a total of 457 active investigations and 261 monitoring cases, with a further 462 cases under evaluation. For cases closed, that is investigations concluded by adopting a final case report, OLAF reports that in 2009:

  • 188 cases were closed, with only 56% closed with follow-up compared with 66.8% in 2008;
  • the average duration of the 'active stage' of cases decreased from 28 to 25 months; and
  • about 60% of OLAF cases were closed in less than two years.

1.24 On follow-up of investigations OLAF notes the 106 cases closed with follow-up in 2009 triggered 193 follow-up proceedings — 75 financial, 62 judicial, 39 administrative and 17 disciplinary actions. Finally in this section OLAF notes that the sums it recovers are merely a fraction of the total amounts recovered following a fraud or other irregularity, as most recoveries are made by Member States with no direct link to OLAF's cases. Of the €249.2 million (£216 million) reportedly recovered as a result of follow-up actions closed in 2009 (a 69% increase on 2008), the agricultural sector represented more than half of this, followed by Structural Funds, at €49.1 million (£43 million), and VAT at €33.9 million (£29 million).

1.25 In the final section of the report, on resource management, OLAF reports that:

  • it had a total budget of €78 million (£68 million);
  • €58 million (£50 million) was allocated to administration and the rest, €21 million (£18 million), was dedicated to operations which fund anti-fraud activities; and
  • the difficulties it encountered in recruiting and retaining expert staff required to fulfil its mission in the past was largely resolved in 2009 with 33 new appointments.

The Government's view

1.26 On the "Fight against fraud" report, document (a), the Economic Secretary to the Treasury (Justine Greening), in her first Explanatory Memorandum of 22 October 2010, comments:

"The Commission's report is, as usual, comprehensive and informative. The Government supports the efforts of the Commission and OLAF, and the cooperation of Member States in the detection of fraud, and welcomes the various measures introduced to protect EU funds."

The Minister comments further that:

  • although the Report shows that much has been achieved, through various reforms, initiatives and specific ongoing improvements, there is still significant progress to be made;
  • the Government is pressing for a reduced EU budget over the coming years and will continue to support further measures in the fight against fraud and the resolve to reduce irregularities;
  • it is extremely disappointed and concerned that the total estimated financial impact of irregularities, including suspected fraud, increased to €1,492.5 million (£1,293 million) in 2009, which the Commission attributed to greater vigilance on its part and those of the Member States in detecting irregularities;
  • it will continue to press hard for higher standards of financial management and action to combat fraud against the EU budget;
  • it is particularly important that Member States, which share responsibility with the Commission for managing the largest spending programmes, act to improve their own management controls and audit scrutiny;
  • the Government is concerned that large amounts of money are still being wrongly paid out and urges all concerned to make further improvements to increase their recovery levels;
  • it believes that the best means of protecting taxpayers' money is through the prevention of fraud;
  • agreeing policies which are less prone to fraud is a key element and the UK has been a strong advocate of simplifying the various regulations which govern the budget sectors and will continue to push for more focus in this area; and
  • the Government will support the Commission's bid to include binding and precautionary elements to future EU legislation concerning shared management in support of speedy recovery procedures, particularly in the cohesion policy area.

1.27 On the internal audits report, document (b), the Minister says, in her Explanatory Memorandum of 6 October 2010, that the Government considers that this report provides a useful summary of the work of the Commission's Internal Audit Service and shows that the service has an important role to play in improving the Commission's governance and internal control. She comments further that:

  • at a time of fiscal consolidation it is critical that EU funds are spent effectively and that financial management is sound;
  • although it is encouraging to note that nearly 99% of audit recommendations were accepted and progress had been made towards reducing the number of outstanding recommendations, there were still significant delays in implementing some critical recommendations; and
  • at the time of reporting 26% of very important recommendations were overdue by more than six months.

The Minister concludes that the Government will be seeking assurances from the Commission that appropriate action will be taken to speed up the implementation of recommendations more quickly than in previous years.

1.28 On the OLAF annual report, document (c), the Minister, in her second Explanatory Memorandum of 22 October 2010, says that the Government welcomes this report and supports the work carried out by OLAF to take action against fraud in the EU. She comments further that:

  • the statistical data and case studies highlight the work of OLAF and the investigations undertaken during 2009 and the Government is encouraged by all the positive efforts to protect the EU's financial interests;
  • the Government welcomes the signs of progress in OLAF's operational output;
  • but it urges OLAF to intensify its efforts in reducing the average duration of investigations, currently 25 months, as a lower turnaround time would give a better indication of the level of fraud, and to improve the effectiveness of its investigations, as presently only 56% of cases closed were followed up by criminal or disciplinary procedures (down from 66.8% compared to 2008);
  • while the €249.2 million (£216 million) reportedly recovered by OLAF at the end of 2009 is welcomed, the Government believes its many partners, including the Member States, must continue to cooperate fully with OLAF to make real progress in speeding up the recovery procedures; and
  • reducing the level of money wrongly paid out should be a priority for all within and outside the EU.

Conclusion

1.29 The Commission's annual report on the fight against fraud, document (a), is a useful basis for regular consideration of how matters stand on improving management of the EU's financial resources and, as is our custom, we recommend that it should be debated in European Committee, together with the annual report of the European Court of Auditors, once that is received.

1.30 As for the Commission Report to the Discharge Authority, document (b), and the OLAF report, document (c), these provide additional information relevant to better management of the EU's financial resources and we recommend that they should also be debated with the annual report of the European Court of Auditors in European Committee B.

1.31 In the debate Members might wish to examine especially the grounds for the Government's optimism, albeit moderately expressed, about improvement in the EU's financial management.





1   See OJ No. C 316, 27.11.95, p 48. Back

2   See OJ No. C 219, 12.9.09, pp 1-10. Back

3   See OJ No. C 313, 23.10.96, p.1, OJ No. C 151, 20.5.97, pp 1-28, and OJ No. C 221, 19.7.97. pp 1-22. Back

4   COM(08) 77, 14.2.2008. Back

5   ASEM members are Brunei, Cambodia, China, India Indonesia, Japan, Korea, Laos, Malaysia, Mongolia, Myanmar, Pakistan, Philippines, Singapore, Thailand, Vietnam, the ASEAN secretariat, the 27 EU Member States and the Commission. Back

6   See OJ C 184E, 08.07.2010, p.63. Back

7   An automatic clearance mechanism for unsuccessful recoveries of unduly paid amounts in which Member States' budgets are charged 50% of amounts they fail to recover from a beneficiary, after four years of a finding to do so.

They are then required to conclude the recovery procedure and to credit the amount recovered to the EU budget. Failure to do this diligently may result in a Commission decision of charging the whole amount to the Member State. Back


 
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