1. The role of the Managing Authorities
Fraud Prevention
The role of the Managing Authorities
Johan KHOUW,
European Commission, OLAF

2. WHAT IS FRAUD? Fraud is a “criminal law” notion.
In 1995, through the Convention on the Protection of the Communities’ Financial Interests (PIF Convention), Member States reached an agreement concerning the definition of EU fraud under criminal law (some elements: intentional act or omission, use of false/incorrect documents, non disclosure of information leading to a loss for the Community budget and misappropriation)
Only a final decision of a judicial authority can qualify a suspected fraud as a fraud case.
Fraud
Prevention
The role of
Managing
Authorities

3. FRAUD AS A “SUB-SPECIES” OF IRREGULARITY
Definition of irregularity:
“any infringement of a provision of Community law resulting from an act or omission by an economic operator which has, or would have, the effect of prejudicing the general budget of the European Union by charging an unjustified item of expenditure to the general budget.”*
* Article 2(7) of Council Regulation (EC) N. 1083/2006
Fraud
Prevention
The role of
Managing
Authorities
Irregularities
Fraud

4. THE COSTS OF FRAUD Economic costs Social Costs
Prevention
The role of
Managing
Authorities
Economic costs
Social Costs
Threat to the trust between institutions and civil society (damage to the reputation of the institutions)

5. THE FIGURES ON IRREGULARITIES IN THE STRUCTURAL ACTIONS AREA PROGRAMMING PERIOD 2000-2006
€ 1.78 billion involved
€ 0.54 billion recovered
€ 0.8 billion to be recovered
€ 0.44 billion suspended before payment
Fraud
Prevention
The role of
Managing
Authorities

6. 12-15% of irregularities are or can be described as suspected fraud
THE FIGURES ON FRAUD IN THE STRUCTURAL ACTIONS AREA PROGRAMMING PERIOD
12-15% of irregularities are or can be described as suspected fraud
20-25% of related amounts
Fraud
Prevention
The role of
Managing
Authorities

7. WHY IS FRAUD COMMITTED? THE FRAUD TRIANGLE: A SOCIOLOGICAL/CRIMINOLOGICAL CONCEPT
Even if a person has a motive, he or she cannot perpetrate a fraud without being given an opportunity
Human nature dictates that people will not commit an act unless they can justify it to themselves (“culture”)
Fraud
Prevention
The role of
Managing
Authorities
The existence of "need or greed" factors can trigger individuals to find a way to meet their needs

8. GOALS OF FRAUD PREVENTION
Clear rules and good management
Fraud Prevention and Repression
Group of individuals
complying with rules
Group of individuals
complying with rules
Group of individuals
complying because of
fear of sanctions
Group of individuals
complying because of
fear of sanctions
Fraud
Prevention
The role of
Managing
Authorities
Group of non-deliberate
offenders
Group of deliberate
offenders
Group of non-deliberate
offenders
Group of deliberate
offenders

9. WHY IS FRAUD PREVENTION SO IMPORTANT? - OLAF’s EXPERIENCE -
The role of
Managing
Authorities
Prevention is a cost-effective approach to dealing with fraud
Investigation and prosecution remain costly and are the responsibility of agencies which may have different priorities and objectives
Investigation and prosecution may take years to achieve results
Fraud prevention can be pursued and achieved at different levels in the management “chain”

10. WHO IS RESPONSIBLE FOR FRAUD PREVENTION?
MEMBER STATES
COMMISSION
OLAF
FRAUD PREVENTION
FRAUD DETECTION AND REPRESSION
Fraud
Prevention
The role of
Managing
Authorities

11. RESPONSIBILITIES OF THE MEMBER STATES - SHARED MANAGEMENT/ Art
RESPONSIBILITIES OF THE MEMBER STATES - SHARED MANAGEMENT/ Art. 53b (2) of Financial Regulation (1605/2002)
[…] Member States shall take all the legislative, regulatory and administrative or other measures necessary for protecting the Community’s financial interests. To this effect they shall in particular:
(a) satisfy themselves that actions financed from the budget are actually carried out and to ensure that they are implemented correctly;
(b) prevent and deal with irregularities and fraud;
(c) recover funds wrongly paid or incorrectly used or funds lost as a result of irregularities or errors;
(d) ensure, by means of relevant sector-specific regulations […], adequate annual ex post publication of beneficiaries of funds deriving from the budget.
To that effect, the Member States shall conduct checks and shall put in place an effective and efficient internal control system […]
Fraud
Prevention
The role of
Managing
Authorities

12. SECTORAL LEGISLATION STRUCTURAL ACTIONS (Reg. 1083/2006)
Member States are responsible for the management and control of operational programmes, in particular through the following measures:
preventing, detecting and correcting irregularities
recovering amounts unduly paid
notifying these to the Commission
keeping the Commission informed of the progress of administrative and judicial proceedings
When amounts unduly paid to a beneficiary cannot be recovered, the Member State is responsible for reimbursement of amounts lost when it is established that the loss has been incurred as a result of fault or negligence on its part (“deterrent effect”).
Fraud
Prevention
The role of
Managing
Authorities

13. INITIATIVES ADOPTED BY THE COMMISSION IN RELATION TO FRAUD PREVENTION
The role of
Managing
Authorities
SEC(2001)2029 of , Communication concerning the fraud proofing of legislation and contract management
COM(2007)806 of , Communication from the Commission: "Prevention of fraud by building on operational results: a dynamic approach to fraud-proofing".

14. NOTIFICATION OF IRREGULARITIES TO THE EC
The notification of irregularities is of great value for the EC
Provides first/overall impression of what goes or could go wrong
Provides information for OLAF/EC analyses to identify risks and threats, in order to improve provisions and controls and strengthen fraud prevention
Particular interest for those irregularities classified by MS as “suspected frauds” giving the Commission services a more exact idea about the level of fraud
Allows the competent EC services to follow-up the financial impact
The role of the managing authorities to contribute to the correct implementation of the reporting obligation is essential
Fraud
Prevention
The role of
Managing
Authorities

15. HOW CAN MANAGING AUTHORITIES PREVENT FRAUD ?
By putting in place an effective control system, e.g.:
Administrative verifications including written standards and procedures
On-the-spot verifications of individual operations including sampling methods for selection
Ensuring that the provisions of the regulations are understood and applied by all (guidance and training)
Action plan of the Commission to strengthen its supervisory role Structural Actions [COM (2008)97 final]
Fraud
Prevention
The role of
Managing
Authorities

16. HOW CAN MANAGING AUTHORITIES PREVENT FRAUD?1
Fraud
Prevention
The role of
Managing
Authorities 1
INTERNAL
(within the organisation)
Integrity / impartiality
Specific attention to tendering procedures
Composition of selection committees
Appropriate remuneration of staff
EXTERNAL
(outside the organisation)
Specific attention to tendering procedures
Economic viability of recipients
Integrity of recipients

17. HOW CAN MANAGING AUTHORITIES PREVENT FRAUD?2
Fraud
Prevention
The role of
Managing
Authorities 2
EXTERNAL
Transparency / publication of beneficiaries
Controls
Specific attention to tendering procedures
INTERNAL
Internal controls
Information exchange and cooperation/partnerships
Adequate staffing
Training

18. HOW CAN MANAGING AUTHORITIES PREVENT FRAUD?3
Fraud
Prevention
The role of
Managing
Authorities 3
INTERNAL
Fraud awareness raising
Promoting internal awareness
Promoting an anti-fraud/integrity culture
Training / “Motivation” of staff managing the funds
EXTERNAL
Fraud awareness raising
Promoting public awareness (free phone and other tools)
Promoting an anti-fraud culture

19. RECOMMENDATIONS MA should develop their own fraud prevention strategy,
Specific:
Identify risks – analysis of types of operation/beneficiary and of already reported cases of irregularities and fraud
Take the appropriate actions to mitigate risks
General:
Training
Fraud awareness raising (internally and externally)
Fraud hot-line
Fraud
Prevention
The role of
Managing
Authorities

20. CONCLUSIONS – KEY WORDS
Fraud awareness
National law
enforcement agencies,
the Commission,
OLAF, etc.
Fraud
Prevention
The role of
Managing
Authorities
Effective and
efficient internal
control systems, etc
Sound financial
management
Partnership