EU defrauded out of €235.5 million in 2019, report shows

The EU was defrauded out of €235.5 million in 2019, with most fraud cases originating from the infrastructure sector, experts from the Centre for Strategy and Evaluation Services (CSES) told MEPs this week.

The Committee on Budgetary Control (CONT), along with experts from the CSES, MEPs and a Commission representative, got together to discuss a report fraud patterns among EU funds.

Monika Hohlmeier (EPP) chaired the session and described the report as “interesting” and “eye-opening”.

 Jack Malan and Ivan Bosch from the CSES presented the aims and findings of their study. The scope was to identify the principal pattern of fraud cases, with a view to early prevention, while selecting good practices to identify and guard against these frauds.

The two eventually formulated recommendations for member states.

Data shows that the EU was defrauded out of €235.5 million in 2019, and that shared management funds account for 70% of EU expenditure programmes.

“It's worth reiterating that under the system of shared management the member states and the national authorities in particular have the primary responsibilities for ensuring the expenditure is properly undertaken in accordance with the standards that might reasonably be expected,” Malan said.

Further findings indicated that the most common types of fraud involved falsification of documents to claim funds. The infrastructure sector, with its “very complex sub-contracting”, is where a lot of fraud cases originate from.

Bosch pointed out one of the main shortcomings when combating fraud is that “in different countries there are different rules and definitions on what is considered a “conflict of interest”.

“Not all member states have adopted or published national anti-fraud strategies and the data tools are not being used by all member states.”

Furthermore, Bosch highlighted that not all managing authorities can access a fraud offenders database or registry such as EDES, which would help identify fraud patterns before things get out of hand and bring the culprits to justice.

Conversely, examples of good practices were seen as coming from whistleblower schemes with centralized and anonymous means. IT systems and software such as EDES and ARACHNE, which are two different types of fraud detection and data mining and detection software, were mentioned as key weapons that need to be used more widely and regularly.

More training and awareness raising was suggested so as to help implement an uptake of these IT tools

Further recommendations from the CSES experts involved increased validation of data through regular and accurate consolidation, better interstate coordination when dealing with fraud, granting investigative powers to the anti-fraud coordination services (AFCOS), sharing of good practices between different national bodies across the EU and a rolling evaluation of anti-fraud practices to ensure they keep step with fraudsters’ new methods.

Bosch repeatedly recommended that, for public procurement, the practices of the World Bank and the EEA are adopted whereby when there is potential or risk of fraud the institutions handle procurement themselves or appoint an NGO to handle it.

MEP Ramona Strugariu, the autor of the report, said that although fraud is a diverse and growing issue, the funds to combat it have not grown to match it.

She was in concurrence with the experts from CSES and also pushed for the Commission to increase its audit capacities and make extensive use of missions and on-site visits, “in order to get the real feel of how EU money is spent in member states”.

From the European Commission, Head of Audit Coordinaiton Lothar Kuhl gave lengthy and considered feedback on the report. “We think that it gives a fair description of the scale of the phenomenon.”

 He also said that he and his team were looking into mandating the use of EDES and ARACHNE software by law so as to ensure harmonization between national authorities.

 “We've been struggling for I don't know how long now to actually get a reliable list of who actually are the largest beneficiaries of EU funds in the different member states,” MEP Daniel Freund (Greens) said.

“When the procurement systems in certain member states are so faulty, continuing as if everything was normal under shared management, seems a bit of an awkward approach to say the least.”

 Freund pointed to inconsistencies in how the laws were implemented, as well as certain loopholes which allow system abuse.