Identifying and preventing fraud & corruption in ESI Funds. Fraud prevention: Audit and control systems; Reporting fraud; Fraud indicators.

Transcription

1 Fraud prevention: Audit and control systems; Reporting fraud; Fraud indicators. Dermot Byrne, Head of Authority Identifying and preventing fraud & corruption in ESI Funds ERDF Audit Authority, Ireland Brussels, February 2019 The opinions expressed are those of the contractor only and do not represent the EC's official position

2 Fraud Prevention Contents Introduction - ERDF Audit Authority, Ireland Introduction Ireland & EU Funds Architecture of audit and control systems Irregularities and reporting to relevant authorities and OLAF Definitions of fraud & corruption Information note on Fraud Indicators for ERDF, ESF and CF Perspectives on fraud detection and prevention in

3 Internal and EU Audit Unit Department of Public Expenditure and Reform The Internal and EU Audit Unit provides an internal audit service to, Department (Ministry) of Public Expenditure and Reform Department (Ministry) of Finance and is the designated ERDF Audit Authority for Ireland.

4 Internal and EU Audit Unit Head of Unit IA & EU Audit Manager DPER Audit Manager EU Audit Manager DFIN Auditor Auditor Auditor Auditor Auditor Auditor DFIN EU EU EU EU DPER Admin Support Internal / EU Audit

5 Architecture of system European Regions

6 Brexit Impact on Ireland?

7 Ireland - regions Northern Ireland (UK) Border, Midland & Western Region Southern & Eastern Region

8 GDP (nominal) Ireland EU Allocations 263 bn GDP (per capita) 56,317 Borders Sea border m Northern Ireland (UK) Wales, England, Scotland (UK) Iceland ERDF 160 Border Midland & Western Regional OP ERDF 249 Southern & Eastern Regional OP ESF 542 Employability, Inclusion and Learning OP EAFRD 2,191 Rural Development Programme EMFF 148 Seafood Development Programme ETC/PEACE Atlantic Area TCP; Ireland/Scotland/Northern Ireland CBP; Ireland/Wales CBP; Northern Periphery & Artic TCP; North West Europe TCP; INTERREG V Inter-regional Prog.

9 ERDF Programmes Ireland Wales Co-operation Programme

10 Architecture of system

11 Architecture of system During Programme

12 Architecture of system Cascade Structure key functions Certifying Authority Annual accounts, certification of expenditure, IT system Managing Authority Manage OP, Verify delivery, Declaration, Anti-fraud measures Intermediate Body Functions delegated by MA or CA Body receiving EU aid Beneficiary

13 Architecture of Member State System MANAGEMENT & CONTROL SYSTEMS AUDIT Certifying Authority Systems Audit Audit Authority Managing Authority Financial controls including Management Verifications Operations audit EX-POST (after EU claim) Intermediate Body Beneficiary EX-ANTE (before EU claim)

14 Architecture of system European Court of Auditors (ECA) Commission Audit Services Audit Authority Certifying Authority Systems audits Operations audits EU oversight of of Audit Authority Managing Authority Intermediate Body Beneficiary

15 Irregularity, fraud, corruption 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 Communities or budgets managed by them, either by reducing or losing revenue accruing from own resources collected on behalf of the Communities, or by an unjustified item of expenditure

16 Irregularities An irregularity does not mean that funds have disappeared, been lost or wasted (sometimes the view of EU) The term Irregularity in general does also not mean fraud. Most irregularities arise due to formal or administrative error rather than fraud. Even when irregularities do arise in projects, funds are generally being used for their intended purpose and when they do occur, they don t affect the delivery of the project.

17 Member State Responsibilities for Irregularities in Article of CPR MS shall prevent, detect and correct irregularities and shall recover amounts unduly paid together with interest on late payments. (general principles) MS shall notify the Commission (OLAF) of irregularities > 10,000 (co-funded element) and advise OLAF of progress to recover and of any legal proceedings.

18 Summary - When Is an Irregularity Recognised? Article 27(b) of 1828/2006 first written assessment by a competent authority Irregularities only arise on expenditure that has been declared to Commission Process of identifying irregularities should be mainly driven by the AA (after the contradictory process) To a lesser extend by MAs and CAs Irregularities can also be discovered on audits by the European Commission or the European Court of Auditors

19 When you do NOT formally report? (Derogations) Art of CPR If the irregularity consists solely in the failure to execute, in whole or in part, an operation included in the OP owing to the bankruptcy of the beneficiary Cases voluntarily brought to the attention of the MA or CA by the beneficiary before detection by either of them Cases which are detected and corrected by the MA or CA before inclusion of the expenditure concerned in a statement of expenditure submitted to the Commission.

20 Definition of Fraud Irregularity, fraud, corruption The use or presentation of false, incorrect or incomplete statements or documents, which has as its effect the misappropriation or wrongful retention of funds from the general budget of the European Communities or budgets managed by, or on behalf of, the European Communities. Non-disclosure of information in violation of a specific obligation, with same effect. Misapplication of such funds for purposes other than those for which granted.

21 Definition of Corruption Irregularity, fraud, corruption The abuse of (public) position for private gain. Note: Corrupt payments facilitate other frauds e.g. false invoices, phantom expenditure, failure to meet contract specifications etc. The most common form of corruption is a receiver (passive corruption) accepting a bribe from a giver (active corruption). Note: It is the element of intention which distinguishes fraud/corruption from irregularity.

22 Fraud Indicators Information Note on Fraud Indicators for ERDF, ESF and CF COCOF 09/0003/00 - EN

23 Purpose of Information Note? To raise fraud awareness. Disseminate to all bodies managing SF s. Use information in Annexes to update procedures. Ensure management verifications are adequate to deter/detect fraud. Verify information with third party (cross check information).

24 Types of Fraud 3 Fraud Types Intentional manipulation of financial statements (e.g. inappropriately reported revenues) Any type of misappropriation of tangible / intangible assets (e.g. fraudulent expenses) Corruption (e.g. bribery, bid rigging, undisclosed conflict of interest, embezzlement)

25 Fraud Triangle Even if person has motive, Opportunity must be given eg, weak internal controls Person can develop a justification I deserve this they owe me just borrowing money FINANCIAL PRESSURE The need or greed factor Financial problems, gambling, addictions

26 1) Corruption bribes and kickbacks Contract / Public Procurement Fraud (16) Corrupt payments; corrupt influence. 2) Undisclose conflict of interest Favouritism of supplier; side business of employee; declines promotion to non-procurement role. 3) Collusive Bidding Complementary (shadow) bids; bid suppression; bid rotation; market division. 4) Unbalanced bidding Inside information to favoured bidder.

27 5) Rigged specifications Contract / Public Procurement Fraud (16) Specs tailored to meet favoured bidder; Common in IT or technical contracts 6) Leaking bid data Preferred solution; details of competing bids. 7) Manipulation of bids Changing bids; losing bids; voiding bids for alleged errors. 8) Unjustified single source awards Splitting purchases; drafting narrow specs; extending previous contracts.

28 Contract / Public Procurement Fraud (16 types) 9) Split purchases Avoid exceeding competition threshold. 10) Co-mingling of contracts Charging same costs to several orders/contracts. 11) Cost mischarging Charging costs which are not allowable; manipulated labour costs. 12) Defective Pricing Failure to disclose current/complete/accurate costs data in bid.

29 Contract / Public Procurement Fraud (16) 13) Failure to meet contract specifications Misrepresent ability to meet specifications; sub-standard materials/parts etc. 14) False, inflated or duplicate invoices Contractor submits invoices; perhaps in collusion with contracting personnel. 15) Phantom service providers Employee or contractor sets up ficticious company to generate invoices. 16) Product substitution Inferior quality items to replace those specified in contract.

30 1) Incurred labour cost Labour / Consultancy services Fraud (4 types) Claim false labour (direct or indirect). 2) Uncompensated overtime Claiming false overtime; contracts worked on during overtime hours. 3) Consulting / professional service No formal agreement; vague as to services rendered; no supporting documentation re hours/rates/expenses. 4) Labour categories Qualifications of contractor staff does not match requirement; key employees not working on contract.

31 Perspectives on fraud in Ireland Fraud awareness? Culture of corruption? Developed anti-fraud policies? Reported irregularities to OLAF? Culture / tone at the top? Challenges for the Programmes?

32 Questions?