Select Committee on European Scrutiny Thirty-Ninth Report



2. SOUND FINANCIAL MANAGEMENT AND FIGHTING FRAUD

 

(23669)

10625/1/02

COM(02) 348

Protection of the financial interests of the Communities and fight against fraud — Commission Annual Report 2001.

 

Legal base:

   

Document originated:

8 July 2002

Deposited in Parliament:

19 July 2002

Department:

HM Treasury

Basis of consideration:

EM of 31 July 2002

Previous Committee Report:

None

To be discussed in Council:

5 November 2002

Committee's assessment:

Politically important

Committee's decision:

For debate in European Standing Committee B, together with the Court of Auditors' Annual Report for 2001 once received

 

The document

    1. This is the Commission's thirteenth Annual Report on protecting the Communities' financial interests. It is divided into three main sections. The first section is an evaluation of the Community's legislative and regulatory activity with examples of cooperation with Member States, applicant countries and third countries in 2001; the second describes measures taken by Member States pursuant to Article 280 EC; and the third is a statistical evaluation of results of the activities of Member States and the Commission in 2001 to protect financial interests and combat fraud.
    2. In the first section the Commission notes what it regards as major developments in Community policy in 2001:

    • the Commission's proposed recasting of the Financial Regulation (adopted by the Council on 25 June 2002) contains further anti-fraud provisions;

    • work is in progress encouraging the establishment of financial management and control structures in the accession states;

    • the European Anti-Fraud Office (OLAF) has consolidated its internal structures to improve cooperation with Member States — this includes establishment of an Intelligence Directorate in OLAF;

    • the number of meetings of the Advisory Committee for the Coordination of Fraud Prevention (COCoLaF) and the Article 280 group has increased. These groups are composed of experts from the Member States who discuss methods to combat fraud more effectively;

    • the Commission revived the debate on a European Public Prosecutor by publishing a Green Paper in December 2001;

    • ratification of the Fraud Convention is behind schedule; and

    • Eurojust's permanent structure for judicial cooperation was established. A Decision to extend Europol's remit to serious forms of international crime was adopted. To combat internal corruption the Commission created an Investigation and Disciplinary Office.

    1. The first section of the report also gives examples of the subjects of internal and external cooperation and partnership with national authorities:

    • reimportation of sugar and sugar mixtures into the Community, with proceedings for the recovery of _2 million in Belgium and _300,000 in France;

    • abuse of the dairy quota systems in Spain, involving fraud estimated at more than _6 million;

    • alleged dual financing of projects in developing countries; and

    • OLAF preparing a PHARE project to help with the establishment of an inter-ministerial anti-fraud structure in Poland.

    1. Finally this section includes an interim report on the implementation of the Action Plan for the protection of the financial interests of the Communities and the fight against fraud 2001-2003.
    2. In the second section of the report the Commission notes measures taken by Member States in 2001. It summarises:

    • principal legislative developments;

    • ratification of the Fraud Convention and how its protocols have been adopted in each Member State;

    • coordination of services and cooperation mechanisms; and

    • administration of recovery procedures.

    1. The statistical evaluation and analysis in the third section:

    • reports the situation as regards fraud and other irregularities in 2001 in the three sectors of traditional own resources, agricultural expenditure and expenditure on structural measures;

    • analyses these under various headings such as type of irregularity or type of goods involved; and

    • summarises actions on financial follow-up, for instance recovery or write-off.

    1. The total number of irregularities communicated in 2001 has decreased in all sectors in comparison to 2000. The table annexed summarises the position. The budgetary implications of irregularities affecting own resources and agricultural expenditure have fallen — from _527 million to _256 million and from _474 million to _230 million respectively. But the budgetary implications affecting the structural funds have increased — from _114 million to _201 million, despite a slight decrease of the number of cases. OLAF dealt with 381 new cases in 2001 (as opposed to 328 in 2000), most of which fall into the criminal category, and it completed 663 cases.
    2. As we have noted before the figures in these annual reports need to be handled with caution and be subjected to careful interpretation. Not all irregularity constitutes fraud: most cases are the result of simple errors. And the conclusion of one big case or the identification of a large-scale suspected fraud can distort the figures considerably between years.
    3. The Government's view

    4. The Financial Secretary to the Treasury (Ruth Kelly) tells us
    5. "The report shows that much has been achieved in the form of new legislation, specific improvements, reforms in the sectoral fields, and in assisting the applicant countries in their preparations for membership. The Government particularly supports the emphasis in this report on prevention of fraud and efforts to foster a new culture of co-operation. It is important to identify the extent of true fraud against the communities budget, and it is encouraging that a clearer distinction between cases of suspected fraud, irregularities, and administrative negligence, is now being undertaken.

      "The Government supports the efforts of OLAF, and the co-operation of Member States in the detection of fraud and welcomes many of the measures and proposals in the Report; but remains unconvinced that creating a European Public Prosecutor would be necessary or desirable."

      Conclusion

    6. We have recommended in the past that the Annual Report be debated in European Standing Committee B and that it be debated alongside the Annual Report from the Court of Auditors. Such debates provide the House with a good opportunity to consider the issues of fraud and irregularities against the EC's financial interests and to express a view on counter-measures.
    7. The Annual Report from the Court of Auditors for 2001 is still awaited. But we expect to recommend that it too should be debated. Meanwhile we recommend that the current document be debated in European Standing Committee B and suggest that the debate be held over until the Court of Auditors' Annual Report is also available.

 

 

ANNEX

Cases of fraud and irregularities communicated by the Member States to the Commission

 

Area of the budget

Number of cases

% change

Amount (in _ m)

% change

2000

2001

2000

2001

Traditional own resources

2,450

1,846

-25%

527

526

0%

EAGGF Guarantee

2,967

2,607

-12%

475

231

-51%

Structural actions

1,217

1,194

-2%

114

202

77%

Total

6,634

5,647

-15%

1,116

959

-14%

 


 
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Prepared 11 November 2002