DG AGRI Seminar. Fraud in the CAP

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1

2 DG AGRI Seminar Fraud in the CAP

3 June 2011 Anti-fraud Strategy European Commission 3 DG AFS AGRI DG AFS DG AFS DG AFS DG AFS DG 12/09/2012

4 4 Seminar: 4 Chapters 1. Fraud prevention and detection by Paying Agencies Irregularities and fraud: Common features and differences 3. Typology of fraud in the CAP 4. Red flags for fraud/irregularities in the high-risk areas

5 Fraud prevention and detection by Paying Agencies

6 6 Fraud Financial impact % of CAP budget CAP budget all RD/PA investments Ø > 4 % Is it all worth the trouble? Ø 0,13 %

7 7 EU legislation: 3 legal sources for anti-fraud in the CAP

8 8 Regulation (EU) No 1306/2013 on the financing, management and monitoring of the common agricultural policy Commission Delegated Regulation No 907/2014 concerning paying agencies and other bodies, etc. Commission Implementing Regulation No 908/2014 concerning paying agencies and other bodies, etc.

9 9 No 1 At the centre of anti-fraud: Art. 58 Regulation (EU) No 1306/2013 Member States shall: Ensure effective protection against fraud, especially in areas at risk Prevent, detect and correct irregularities and fraud Impose penalties which are effective, dissuasive and proportionate Recover undue payments plus interest

10 10 No 2 Commission Delegated Regulation No 907/2014 concerning paying agencies and other bodies, etc. New approach to fraud prevention and detection: Before authorizing payment claim: Checks foreseen in Art. 58 Regulation (EU) No 1306/2013 must be in place (Annex I 2 (A)(iii)) Internal control activities shall also cover monitoring procedures to prevent and detect fraud (Annex I 4 (A)(iv)) Training for staff to raise fraud awareness (Annex I 1 (B)(iv))

11 11 No 3 Commission Implementing Regulation No 908/2014 concerning paying agencies and other bodies, etc. Accreditation (pre-accreditation review) (Art. 1 (3)(c)) shall cover the extent to which the procedures and systems put in place are apt to safeguard the Union budget including riskbased anti-fraud measures Management declaration of the Director of the PA (Annex 1) "Furthermore, I confirm that effective and proportionate anti-fraud measures under Article 58 of Regulation (EU) No 1306/2013 are in place and take account of the risks identified."

12 12 Recommendations of the Commission 1. step: Fraud risk assessment with ranking 2. step: Analysis of the existing administrative and control structures to possibly increase fraud prevention and detection 3. step: Register of fraud indicators 4. step: Internal rules on dealing with suspicion of fraud 5. step: Staff training for fraud awareness

13 13

14 14 Anti-fraud seminars in Paying Agencies Done Fixed On-going

15 End of Chapter 15

16 Setting the context - Irregularities and Fraud Character and Consequences

17 17 Irregularity 'Irregularity` shall mean 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 directly on behalf of the Communities, or by an unjustified item of expenditure. Art. 1 (2) Regulation No 2988/1995 Any infringement: Negligent or intentional

18 18 Fraud Fraud affecting the European Communities' financial interests in respect of expenditure shall consist of any intentional act or omission relating to: -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 the same effect, - the misapplication of such funds for purposes other than those for which they were originally granted. CONVENTION drawn up on the basis of Article K.3 of the Treaty on European Union, on the protection of the European Communities' financial interests Intentionality

19 19 Irregularity A situation in which the rules, laws, or correct ways of doing things have not been followed Intent Fraud Dishonesty calculated for advantage. Or: A situation in which the rules, laws, or correct ways of doing things have not been followed intentionally with the purpose of obtaining an undue advantage.

20 20 Fraud = Always also an irregularity Irregularity = Fraud only when intentional

21 21

22 22 Consequences of irregularities and fraud Fundamental principle: As a general rule, any irregularity shall involve withdrawal of the wrongly obtained advantage by an obligation to pay or repay the amounts due or wrongly received. Art. 4 (1) Regulation No 2988/1995

23 23 In addition, for both negligent and intentional irregularities and fraud Payment of an administrative fine Payment of an amount greater than the amounts wrongly received, plus interest where appropriate Exclusion from the programme Art. 5 (1) Regulation No 2988/1995 Art. 58 (1) Regulation No 1306/2013 In case of over-declarations: Administrative penalties Art Delegated Regulation No 640/2014

24 24 ONLY for suspected fraud: Possible criminal prosecution

25 End of Chapter 25

26 Typology of Fraud in the CAP

27 Fraud likelihood FRAUD Easy controls Complex controls Area aid: LPIS/IACS Investment projects 27

28 28 Direct aid Most market measures Risk comparatively low Incidents not systemic Absence of Red Flags

29 29

30 30 Promotion measures Risk structurally increased Incidents not systemic Absence of Red Flags

31 Paying Agency Proposing body = beneficiary Risk: Inflated/fictitious services Implementing body 31

32 32 Proposing body: Olive-Association Owner: J. Smith Implementing body: Food-Event Ltd. Food-Show Sprl Food-Taste GmbH

33 33 Producer Organisations Risk: Financial engineering bordering fraud Incidents as yet not systemic, but system emerging Red Flags scarce

34 34 PO Apple SRL Owners/managers of Fruit SRL: Peter and Paul Total control!

35 35 Paul's plot Sorting/washing/ packaging/cooling -facility Built by Paul for and sold to Apple SRL for ! CAP contribution: !

36 36 Investment projects RD Promotion actions Producer Organisations SPS/SAPS Market measures

37 37 Fraud hotspot: Rural Development Investment projects Ordinary fraud Manipulated private procurement Artificial creation of funding conditions

38 Ordinary fraud - Misuse of funding 38

39 39 Ordinary fraud Financial engineering Cofinancing EAFRD Private financing

40 40 Private procurement Investment projects must comply with the Three-offer-rule, i.e.: Three authentic and independent offers from qualified suppliers to ensure competition and best value for money to attain the purpose of the project Consultants!

41 41 Fraud schemes under the "Three-offer-rule" Second-hand equipment instead of new Complacency offers Manufactured/falsified and inflated offers Other manipulations

42 42 Second-hand equipment Normally excluded from aid Therefore: From old make new (paint-job; falsified equipment identification) Insidious: Only one fraudulent offer against two real, innocent offers the fraudulent one will always win

43 New OLD Holland tractor 43

44 44 Complacency offers Alliance of evil True complacency Several bidders participate in bidding carousel Losing bidders supply equipment to winning bidder ("No-loser-deal") Non-independent offers: Bidders affiliated

45 45 Bidding carousel Project 1 A: B: C: Project 2 A: B: C: Project 3 A: B: C: 1.000

46 46 Project 1 A: B: C: Project 4 A: D: F: Project 7 D: F: E: Project 2 A: B: D: Project 5 C: B: A: Project 8 E: B: A: Project 3 D: B: E: Project 6 A: D: C: Project 9 A: C: E: 1.000

47 47 No loser A: B: C: Machine for beneficiary with components ALtd. Winner supplies supplies B GmbH C SRL. Loser Winner Loser Winner

48 48 Manufactured offers One offer is authentic, two others invented - and mostly all are inflated Consultants Sales agents abusing from their position representing various manufacturers

49 49

50 50 Double Clip List price = Market price = ~65.000

51 51 Offer Offer Offer Both offers falsified to cover offer 1 Beneficiary owes , but transfers Aid: Liberated: transferred back to the beneficiary to consultant to seller Financial maths: Payment: Aid: Kick-Back Investment: VS. True price: Aid Investment: