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ECA Opinions on the Commission’s legislative proposals for fighting fraud

Eva Lindström.

The ECA regularly provides Opinions on new proposals for EU legislation. In 2018, as requested by the Parliament and the Council, the ECA published two Opinions in the area of fraud: one on the Commission’s proposal relating to the new EU Anti-Fraud Programme and another one on cooperation between OLAF and the European Public Prosecutor’s Office (EPPO). In this article Eva Lindström, who as ECA Member was closely involved in preparing these two Opinions, explains what they are about and what the ECA considers to be some of the key issues in the EU’s fight against fraud and corruption.

By Eva Lindström, ECA Member

Better internal controls — less errors

Internal control of EU spending has been strengthened significantly in the last ten years. The increasing effectiveness of the European Commission’s and the Member States’ internal control systems is also illustrated by the year-on-year decrease in the ECA’s estimated level of error in payments, which can also be seen as an estimate of the degree to which spending does not comply with the EU’s financial rules. For the third year in a row, our audit work in the context of the annual Statement of Assurance (SoA) shows a decreasing level of error in EU spending: for the financial year 2015, the estimated level of error in payments amounted to 3.8 %, in 2016 it was 3.1 % and in 2017 it was 2.4%.

For the 2017 SoA exercise, our auditors examined around 700 transactions. Of these we handed over 13 to the EU Anti-Fraud Office (OLAF) for further investigation due to suspicion of possible fraud. Our special reports 1/2019 on fighting fraud in EU spending and 6/2019 on tackling fraud in EU cohesion expenditure make one thing clear: the fight against fraud and corruption needs to be strengthened, at both EU and Member State level. This is important for the European project, not least in the light of increasing EU scepticism in a number of countries.

ECA opinion on the next EU Anti-Fraud Programme

In our Opinion No 9/2018, published in November 2018, we commented on the proposal for establishing the next EU Anti-Fraud Programme, for which the proposed programme budget amounted to €181 million for the entire period — 2021–2027. This programme — which is directly administered by the Commission — is the only one dedicated to the protection of the financial interests of the European Union. Its three specific objectives are:

  • to prevent and combat fraud, corruption and any other illegal activities affecting the EU’s financial interests;
  • to support the reporting of irregularities, including fraud;
  • to provide tools for information exchanges and support for operational activities in the field of mutual administrative assistance in customs and agricultural matters.

In particular, it supports mutual assistance between the administrative authorities of the Member States and cooperation between them and the Commission to ensure the correct application of the law on customs and agricultural matters.

The programme would essentially continue its predecessor, the Hercule III programme, while also financing the Anti-Fraud Information System (AFIS) and the Irregularity Information System (IMS). In the opinion, we welcomed the initiative to streamline budgetary management in this way. We also consider that such an approach could contribute to an efficient and effective use of resources in similar areas.

We criticised, however, that the proposal had not been based on a comprehensive impact assessment. Moreover, we questioned the programme’s value added and pointed out a risk of overlaps and lack of synergies with other EU actions. Finally, we noted that the monitoring of implementation, the evaluation of results and the effective targeting of funds to actions ensuring value added would be difficult, since the programme’s objectives and its performance indicators were not sufficiently clear and specific. In view of the importance given to fighting fraud against the EU budget, the EP increased the programme funding to €321 million.

ECA opinion on EPPO and OLAF investigations

Our other recent opinion — Opinion 8/2018 related to the fight against fraud and corruption, also published in November 2018 — was on the Commission’s proposal to amend the OLAF Regulation to adapt the functioning of OLAF to the establishment of the European Public Prosecutor’s Office (EPPO).

Box: OLAF and EPPO

Since its establishment in 1999 OLAF, (Office Européen de Lutte Anti-fraud), the EU Anti-Fraud Office, has been responsible for developing anti-fraud policy and conducting independent administrative investigations into suspicions of fraud, corruption and illegal activities affecting EU financial interests. The purpose of these administrative investigations is to recover money incorrectly spent. OLAF cannot carry out prosecutions on suspicion of fraud, it can only make recommendations. Instead, national authorities must act.

The administrative investigations carried out by OLAF and launched on the basis of suspicion of fraud are often complex and sensitive. If there is a reason to suspect fraud, it is important to secure evidence, and should the suspicions turn out to be wrong the procedure must respect the integrity of the individual or organisation involved. Currently an OLAF investigation takes on average between 17 and 18 months. To this must be added the time needed for judicial procedures in national courts. Time in itself is a crucial factor in order to avoid fraudsters disappearing or covering their tracks.

It is hard to estimate how much of EU spending is lost to fraud. In 2017, OLAF opened 215 investigations on suspected fraud cases and finished 197 investigations. As a result, OLAF recommended recovery of €3 billion.

The European Public Prosecutor’s Office — the EPPO — is to be operational from late 2020 or early 2021 onwards. It will be responsible for investigating, prosecuting and bringing to judgement criminal offences affecting the EU’s financial interests within the meaning of the PIF-directive (Protection d’intérêts financiers). The EPPO is being set up under the model of enhanced cooperation between — currently — 22 Member States. Given that the EPPO will be empowered to investigate and prosecute crimes against the EU’s financial interests in participating Member States, the establishment of the EPPO significantly changes the legal and institutional setting for fighting fraud against the EU’s financial interests.

The aim of the proposal was to facilitate future cooperation between the two bodies in the fight against fraud and to enhance the effectiveness of OLAF’s investigative function. The issue of OLAF and its work has been a topic of interest during many years for both the European Parliament, and particularly its Budget and Control Committee, and the Council. It is a complex issue involving not only organisational challenges but also addressing subsidiarity and proportionality from a Member State point of view.

We considered that the proposal reflects well the principles that should govern cooperation between OLAF and the EPPO, such as close cooperation, exchange of information, complementarity and non-duplication of work. However, we also found certain weaknesses, such as the need to increase the effectiveness of OLAF’s investigations, their timeliness and the recovery of funds. These remain major challenges to be addressed.

The proposal includes a limited number of targeted measures, which we welcomed because they should help improve effectiveness. Amongst others, these measures are: clarification as to when national and European law applies during OLAF on-the-spot checks; access for OLAF to bank account information; strengthened admissibility of evidence collected by OLAF; clarifications in the proposal on OLAF’s mandate in Value Added Tax (VAT) matters.

At the same time, we also stated that the proposed changes would not resolve the overall issue of the effectiveness of OLAF’s administrative investigations. This is also recognised by the Commission, which plans to propose a more comprehensive modernisation of the OLAF framework at a later stage. However, there is currently neither a time plan for such further reform of OLAF nor a clear identification of which issues would be addressed.

We also stressed the need for further action. In the short term, we proposed that the Commission should address the overall issue of OLAF’s effectiveness and reconsider OLAF’s role and responsibilities in combating fraud in EU spending. In this regard, OLAF could be given a strategic and oversight role in EU anti-fraud actions. In the medium term, the Commission should evaluate co-operation between OLAF and the EPPO and, where appropriate, propose further legislative actions. Currently, the proposal is still under negotiation between the Council and the European Parliament.

Successful cooperation will be key in the fight against fraud

Member State authorities and EU institutions must give dealing with suspicions of fraud and corruption the highest priority. This is key for maintaining the citizen’s trust in the EU. In this respect, the Commission proposal on the EPPO can become a game changer, if the EPPO is set up properly with adequate resources. So far, however, not all Member States have chosen to participate in the EPPO. Denmark, Ireland, Hungary, Poland and the UK are not participating. Sweden is expected to join, according to the Swedish Prime Minister’s speech in the European Parliament on the 4 April 2019.

For the future, it is important that cooperation between OLAF and the EPPO functions well and increases the effectiveness of OLAF’s investigations. When international crime such as fraud knows no borders in the EU but the fight against it does, then there is clearly an unfavourable situation. The possibility to prosecute across borders increases with the creation of the EPPO, and this means there will be greater potential for discouraging fraud and increasing the amount of money recovered.

The mere suspicion that Member States, national authorities or institutions are not treating EU financial interests with the greatest concern is already damaging to the trust of citizens in the EU. As the EU’s external auditor, we will continue to be their watchdog and keep track of the effective, efficient and economic use of the EU’s finances, and provide an independent assessment of the EU’s policies and programmes. In the end, it is all about the taxpayer’s money.

This article was first published on the 2/2019 issue of the ECA Journal. The contents of the interviews and the articles are the sole responsibility of the interviewees and authors and do not necessarily reflect the opinion of the European Court of Auditors.

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The ECA Journal features articles on a variety of current audit topics, the ECA’s role and work. It is available in electronic form below, and paper copies can be ordered online at the EU Bookshop.

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