DG AGRI Seminar Fraud in the CAP
June 2011 Anti-fraud Strategy European Commission 3 DG AFS AGRI DG AFS DG AFS DG AFS DG AFS DG 12/09/2012
4 Seminar: 4 Chapters 1. Fraud prevention and detection by Paying Agencies 2014-2020 2. 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
Fraud prevention and detection by Paying Agencies 2014-2020
6 Fraud Financial impact % of CAP budget 5 4 3 2 1 2009 2010 2011 2012 2013 CAP budget all RD/PA investments Ø > 4 % Is it all worth the trouble? Ø 0,13 %
7 EU legislation: 3 legal sources for anti-fraud in the CAP 2014-2020
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 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 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 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 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
14 Anti-fraud seminars in Paying Agencies Done Fixed On-going
End of Chapter 15
Setting the context - Irregularities and Fraud Character and Consequences
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 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 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 Fraud = Always also an irregularity Irregularity = Fraud only when intentional
21
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 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. 19-21 Delegated Regulation No 640/2014
24 ONLY for suspected fraud: Possible criminal prosecution
End of Chapter 25
Typology of Fraud in the CAP
Fraud likelihood FRAUD Easy controls Complex controls Area aid: LPIS/IACS Investment projects 27
28 Direct aid Most market measures Risk comparatively low Incidents not systemic Absence of Red Flags
29
30 Promotion measures Risk structurally increased Incidents not systemic Absence of Red Flags
Paying Agency Proposing body = beneficiary Risk: Inflated/fictitious services Implementing body 31
32 Proposing body: Olive-Association Owner: J. Smith Implementing body: Food-Event Ltd. Food-Show Sprl Food-Taste GmbH
33 Producer Organisations Risk: Financial engineering bordering fraud Incidents as yet not systemic, but system emerging Red Flags scarce
34 PO Apple SRL Owners/managers of Fruit SRL: Peter and Paul Total control!
35 Paul's plot Sorting/washing/ packaging/cooling -facility Built by Paul for 700.000 -and sold to Apple SRL for 3.000.000! CAP contribution: 1.500.000!
36 Investment projects RD Promotion actions Producer Organisations SPS/SAPS Market measures
37 Fraud hotspot: Rural Development Investment projects Ordinary fraud Manipulated private procurement Artificial creation of funding conditions
Ordinary fraud - Misuse of funding 38
39 Ordinary fraud Financial engineering Cofinancing EAFRD 125.000 295.000 Private financing
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 Fraud schemes under the "Three-offer-rule" Second-hand equipment instead of new Complacency offers Manufactured/falsified and inflated offers Other manipulations
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
New OLD Holland tractor 43
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 Bidding carousel Project 1 A: 1.000 B: 1.100 C: 1.200 Project 2 A: 1.100 B: 1.000 C: 1.200 Project 3 A: 1.200 B: 1.100 C: 1.000
46 Project 1 A: 1.000 B: 1.100 C: 1.200 Project 4 A: 1.000 D: 1.100 F: 1.200 Project 7 D: 1.000 F: 1.100 E: 1.200 Project 2 A: 1.100 B: 1.000 D: 1.200 Project 5 C: 1.100 B: 1.000 A: 1.200 Project 8 E: 1.100 B: 1.000 A: 1.200 Project 3 D: 1.200 B: 1.100 E: 1.000 Project 6 A: 1.200 D: 1.100 C: 1.000 Project 9 A: 1.200 C: 1.100 E: 1.000
47 No loser A: 1.000 B: 1.100 C: 1.200 Machine for beneficiary with components ALtd. Winner supplies supplies B GmbH C SRL. Loser Winner Loser Winner
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
50 Double Clip List price = 85.310 Market price = ~65.000
51 Offer 1 120.000 Offer 2 122.000 Offer 3 125.000 Both offers falsified to cover offer 1 Beneficiary owes 65.000, but transfers 120.000 Aid: 60.000 Liberated: 55.000 40.000 transferred back to the beneficiary 10.000 to consultant 5.000 to seller Financial maths: Payment: 120.000 Aid: - 60.000 60.000 Kick-Back - 40.000 Investment: 20.000 VS. True price: 65.000 Aid 32.500 Investment: 32.500