6. FIGHT AGAINST FRAUD
Letter from Lord Tordoff, Chairman of
the Committee, to Melanie Johnson MP, Economic Secretary to the
Treasury
At its meeting on 1 February, Sub-Committee
A considered the Commission's tenth annual report (1998) on protecting
the Communities' financial interests and the fight against fraud,
together with your helpful Explanatory Memorandum. The Sub-Committee
decided that the document should be cleared from scrutiny, while
noting that it would of course be relevant to any future inquiry
into combating fraud.
In the meanwhile, however, the Sub-Committee
has asked me to raise the following points with you:
(1) You expected the report to be considered
by ECOFIN on 31 January. If this happened, what was the general
reaction to the report? Did other Member States share the Government's
view on the importance of this work?
(2) The report deals (paragraph 2.2.3.1)
with the case of a college in the United Kingdom which received
ESF funding for a course which turned out not to exist. Have the
relevant UK Departmental Internal Audit team and/or the National
Audit Office been involved in investigating this case and the
possible similar irregularities in other colleges to which the
report refers? Will the matter be reported to the Public Accounts
Committee? More generally, the report says that this case "illustrates
the need for thorough national checks at the different stages
of the projects financed by the Structural Funds": what has
been done to improve these checks in the UK?
(3) The report mentions (paragraph 2.3) that
UK officials were involved during 1998 in a co-ordinated operation
on fraud in respect of VAT on mobile telephones, and that investigations
were continuing. What further progress has been made on this investigation,
and have UK officials been involved in other similar exercises?
(4) According to the report, the UK had not
ratified either the Convention on the protection of financial
interests or the first Protocol on corruption. You note in your
Explanatory Memorandum that the UK has in fact recently ratified
the Convention; when was this done, and why had it not been done
earlier? Has the UK also now ratified the first Protocol, and
if not why not?
(5) The "training table" annexed
to the report suggests that the UK organised fewer training events
than some other Member States. Is the Government satisfied that
the right sort of training is taking place, and that the UK is
participating appropriately?
3 February 2000
Letter from Melanie Johnson MP, Economic
Secretary to the Treasury, to Lord Tordoff, Chairman of the Committee
Thank you for your letter of 3 February 2000
advising that the European Commission's Fight Against Fraud Report
had been cleared from scrutiny and asking for further information
on a number of points.
In reference to the first question concerning
the general reaction to the report at ECOFIN, I am pleased to
state that other Member States shared the Government's view of
the importance of this report. In particular, ECOFIN was concerned
about the delay in presentation of this report and requested that
the Commission keep to the established timetable in the future.
Your second question refers to the case involving
ESF funding to a UK college. This problem was first identified
by the Department for Education and Employment (DfEE)'s ESF Unit's
Verification and Audit Section (VAS) during a planned inspection
visit. The case involved a college in Scotland, which was unable
to produce sufficient records to justify payment of grant in respect
of a number of ESF supported projects between 1994 and 1996. The
European Commission (EC) has therefore initiated procedures for
grant recovery of £1.4m. These proceedings are yet to be
completed.
VAS inspection reports are available to both
DfEE's and the Scottish Executive's (SE) Internal Audit as well
as the National Audit Office (NAO) on request. The NAO for Scotland
have seen the relevant papers and files maintained by SE concerning
the reported case. The joint VAS/OLAF investigation concluded
that the irregularity was not a systematic error but confined
to the one Scottish college. However, after consultation with
the Commission, SE issued further guidance to the Scottish Further
Education colleges in 1999 aimed at improving checks.
The new Agenda 2000 ESF Programme (2000-2006)
will have a greatly increased programme for the monitoring and
evaluation of all ESF projects. This will include a requirement
for regular returns to be provided by all ESF applicants to the
relevant Government Departments detailing financial spend against
profile and the quality outputs achieved by the project. DfEE
is currently considering the implementation of new monitoring,
inspection and audit arrangements for ESF.
The third question referred to the progress
made on an operation in respect of VAT on mobile phones. The operation
mentioned in the EC report is still ongoing, it is estimated that
fraud uncovered to date is worth in the region of £20 million.
As part of the operation, a number of co-ordinated arrests were
made in the UK, Spain, Belgium, Germany and Denmark on 11 November
1998. UK Customs are continuing to work with colleagues in other
EC countries with the aim of achieving international arrest warrants
and extraditions to allow a number of the chief perpetrators of
this fraud to be tried in this country. This was one of 25 such
operations by UK Customs officials which have taken place over
the last three years to combat fraud in the telecommunications
and computer parts industry, which face similar risks.
On 1 March 2000 UK Customs commenced legal proceedings
in two further cases which involved an estimated combined fraud
of over £10 million. Those frauds stretched over the UK,
Denmark, Holland, Germany and Luxembourg. These types of fraud
by their very nature are complex and require cooperation between
UK Customs and their EC colleagues to counter them. Customs has
also established a Eurofraud Action Group which is developing
a strategy specifically in this sector by tightening controls,
using better intelligence to identify potential fraudsters as
early as it is possible. Customs are also working with manufacturers
to establish a Mobile Phone Industry Group which will create a
forum where manufacturers and Customs can co-operate to prevent
this sort of fraud.
Question four asks about UK ratification of
the Convention on the protection of financial interests of the
EU and the first Protocol on corruption. The Foreign Secretary
signed the necessary Instruments of Adoption in September. These
have been deposited with the Secretary General of the Council
of the European Union in order to complete the ratification process
for mainland UK. The convention could not be ratified earlier
because the UK does not ratify international instruments unless
or until domestic legislation is in place to enable compliance.
The final question refers to UK participation
in training course organised on the Commission's initiative. I
can confirm that the UK participates fully in appropriate Commission
training initiatives. However, the number of courses being carried
out will naturally vary from year to year and between Member States.
In 1997 for instance, three training events were organised by
the Commission in the UK whereas there were no training events
in Austria, Greece, Ireland, the Netherlands or Spain.
8 March 2000
Letter from Lord Tordoff, Chairman of
the Committee, to Melanie Johnson MP, Economic Secretary to the
Treasury
Thank you for your letter of 8 March, replying
to the questions which Sub-Committee A had raised when it considered
the Commission's 1998 report on the Fight against Fraud. The Sub-Committee
has asked me to thank you for your helpful responses, and to say
that it will be returning to the issues raised by the report in
its next inquiry.
Meanwhile, however, there is one point on which
it would welcome further information now. You say that DfEE is
"currently considering the implementation of new monitoring,
inspection and audit arrangements for ESF". Sub-Committee
A would be glad to know what the current arrangements for ESF
are, what changes are proposed, and when they are expected to
be introduced.
22 March 2000
Letter from Melanie Johnson MP, Economic
Secretary to the Treasury, to Lord Tordoff, Chairman of the Committee
Thank you for your letter of 22 March 2000 regarding
the issues raised by Sub-Committee A on the Commission's Fight
against Fraud Report.
The Sub-Committee requested further information
on the current arrangements and future developments of monitoring,
inspection and audit of European Social Funds.
From 1997, Article 23 of Council Regulation
4253/88, as amended by Regulation (EEC) 2082/93 placed the responsibility
on the UK Government to take the necessary measures to verify
on a regular basis that operations financed by the Community had
been properly carried out. To meet this responsibility, in addition
to routine management checks carried out during the various ESF
administrative processes, from 1992 DfEE's European Social Fund
Unit (ESFU)'s Verification and Audit Section (VAS) carried out
a programme of inspection visits to ESF applicant. The Department's
Internal Audit Division also included the scope of ESFU's activities
as part of their five-year audit plan, as agreed with the DfEE's
Internal Audit Committee.
A new EC Regulation on Financial Control, Commission
Regulation (EC) No. 2064/97, came into effect in 1998. The new
regulation sets out detailed arrangements for the minimal level
of financial control acceptable throughout the EC for management
of the Structural Funds, including ESF. The regulation includes
a requirement to carry out inspection visits to ESF applicants
to cover 5 per cent of the total eligible declared expenditure
during the life of each ESF programme.
The new Regulation coincided with further changes
in the way in which ESF is administered in England. With effect
from 1 January 1999 all Government Offices (GOs) assumed delegated
responsibility from DfEE's ESFU for administration of all mainstream
ESF Projects.
To assess the Accounting Officer risks presented
by ESF projects and payment processes, a pilot exercise ran from
1 January 2000 to 31 March 2000 in four GOs. Each of the four
GOs began a payments and projects inspection programme of 12 visits
based on VAS methodologies, previously recognised by the Commission
as meeting the quality standards for inspection visits. This has
now been extended to all other GOs. It is intended that the evaluation
of the pilot exercise will inform proposals for future work in
carrying out ESF monitoring and inspection, and also meeting the
5 per cent target for Article 2064 coverage. ESFU's VAS continued
to carry out Article 23 inspection visits.
8 April 2000
Letter from Lord Tordoff, Chairman of
the Committee, to Melanie Johnson MP, Economic Secretary to the
Treasury
Thank you for your letter of 8 April answering
the queries raised in mine of 22 March. Sub-Committee A is grateful
for the information which you provided, and is not pursuing the
issues further at the moment (though it may of course return to
them in its next inquiry, on fraud and financial management).
19 April 2000
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