Fraud Prevention

The role of the Managing

Authorities

Johan KHOUW,
European Commission, OLAF

1
 WHAT IS FRAUD?

• Fraud is a “criminal law” notion.

Fraud • In 1995, through the Convention on the Protection of

Prevention the Communities’ Financial Interests (PIF Convention),
The role of Member States reached an agreement concerning the
Managing
definition of EU fraud under criminal law (some
elements: intentional act or omission, use of
Authorities 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.
2
 FRAUD AS A “SUB-SPECIES” OF
IRREGULARITY

Definition of irregularity:

Fraud “any infringement of a provision of

Prevention Community law resulting from an act
or omission by an economic operator
The role of which has, or would have, the effect
Managing of prejudicing the general budget of
the European Union by charging an
Authorities unjustified item of expenditure to the
Irregularities general budget.”*

Fraud * Article 2(7) of Council Regulation (EC)

N. 1083/2006

3
 THE COSTS OF FRAUD

Fraud
Prevention • Economic costs
The role of • Social Costs
Managing
Authorities • Threat to the trust between
institutions and civil society (damage
to the reputation of the institutions)

4
 THE FIGURES ON IRREGULARITIES IN THE
STRUCTURAL ACTIONS AREA PROGRAMMING
PERIOD 2000-2006

• 12,161 irregularities
Fraud
Prevention • € 1.78 billion involved
The role of • € 0.54 billion recovered
Managing
• € 0.8 billion to be
Authorities
recovered
• € 0.44 billion suspended
before payment

5
 THE FIGURES ON FRAUD IN THE
STRUCTURAL ACTIONS AREA PROGRAMMING
PERIOD 2000-2006

• 12-15% of irregularities are or can be described as

Fraud suspected fraud
Prevention • 20-25% of related amounts
The role of
Managing
Authorities

6
 WHY IS FRAUD COMMITTED?
THE FRAUD TRIANGLE: A
SOCIOLOGICAL/CRIMINOLOGICAL CONCEPT

Fraud Even if a Human nature

Prevention person has a dictates that
The role of motive, he or people will not
Managing she cannot commit an act
Authorities perpetrate a unless they can
fraud without justify it to
being given an themselves
opportunity (“culture”)

The existence of "need or greed" factors can trigger

individuals to find a way to meet their needs 7
 GOALS OF FRAUD PREVENTION

Group of individuals
Fraud Group of individuals
complying
Group of because of
individuals
Prevention complying with rules
Group of individuals
The role of fear of sanctions
complying because of
complying with rules
Managing fear of sanctions
Authorities

Group of non-deliberate Group of deliberate

offenders
Group of non-deliberate offenders
Group of deliberate
offenders offenders
8
 WHY IS FRAUD PREVENTION SO
IMPORTANT?
- OLAF’s EXPERIENCE -

Fraud • Prevention is a cost-effective approach to dealing with fraud

Prevention
• Investigation and prosecution remain costly and are the
The role of
Managing responsibility of agencies which may have different priorities
Authorities 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”
9
 WHO IS RESPONSIBLE FOR FRAUD
PREVENTION?

Fraud MEMBER
COMMISSION OLAF
Prevention STATES
The role of
Managing FRAUD
Authorities PREVENTION

FRAUD
DETECTION
AND
REPRESSION
10
 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
Fraud Community’s financial interests. To this effect they shall in
Prevention particular:
The role of (a) satisfy themselves that actions financed from the budget are
actually carried out and to ensure that they are implemented
Managing correctly;
Authorities (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 […] 11
 SECTORAL LEGISLATION STRUCTURAL
ACTIONS (Reg. 1083/2006)

• Member States are responsible for the management and control of

operational programmes, in particular through the following
Fraud
measures:
Prevention
– preventing, detecting and correcting irregularities
The role of – recovering amounts unduly paid
Managing – notifying these to the Commission
Authorities – 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”).
12
 INITIATIVES ADOPTED BY THE COMMISSION
IN RELATION TO FRAUD PREVENTION

Fraud
Prevention
• SEC(2001)2029 of 7.11.2001, Communication
The role of concerning the fraud proofing of legislation and contract
Managing management
Authorities

• COM(2007)806 of 17.12.2007, Communication from the

Commission: "Prevention of fraud by building on
operational results: a dynamic approach to fraud-
proofing". 13
 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
Fraud – Provides information for OLAF/EC analyses to identify risks and
Prevention threats, in order to improve provisions and controls and strengthen
The role of fraud prevention
Managing – Particular interest for those irregularities classified by MS as
Authorities “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
14
 HOW CAN MANAGING AUTHORITIES PREVENT
FRAUD ?
1. By putting in place an effective control system, e.g.:
• Administrative verifications including written standards and
Fraud procedures

Prevention • On-the-spot verifications of individual operations including sampling

methods for selection
The role of
Managing 2. Ensuring that the provisions of the regulations are understood
Authorities and applied by all (guidance and training)
3. Action plan of the Commission to strengthen its supervisory
role Structural Actions [COM (2008)97 final]

15
 HOW CAN MANAGING AUTHORITIES
PREVENT FRAUD?
1

Fraud 1
Prevention
The role of INTERNAL EXTERNAL
Managing (within the organisation) (outside the organisation)
Authorities • Integrity / impartiality
• Specific attention to • Specific attention to
tendering procedures tendering procedures
– Composition of – Economic viability of
selection committees recipients
• Appropriate – Integrity of recipients
remuneration of staff 16
 HOW CAN MANAGING AUTHORITIES
2
PREVENT FRAUD?

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

Fraud
Prevention 3
The role of INTERNAL EXTERNAL
Managing
Authorities • Fraud awareness • Fraud awareness raising
raising – Promoting public
– Promoting internal awareness (free phone
awareness
and other tools)
– Promoting an anti-
fraud/integrity culture – Promoting an anti-fraud
culture
• Training / “Motivation”
of staff managing the
funds 18
 RECOMMENDATIONS

• MA should develop their own fraud prevention strategy,

Fraud Specific:
Prevention – Identify risks – analysis of types of operation/beneficiary
The role of and of already reported cases of irregularities and fraud
Managing
– Take the appropriate actions to mitigate risks
Authorities
General:
– Training
– Fraud awareness raising (internally and externally)
– Fraud hot-line
19
 CONCLUSIONS – KEY WORDS

Fraud awareness
Fraud National law
Prevention enforcement agencies, Effective and
The role of the Commission, efficient internal
Managing OLAF, etc. control systems, etc
Authorities

Sound financial
Partnership management 20