Identifying and preventing fraud & corruption in ESI Funds Fraud … · 2019-02-07 · Corrupt...

This training has been organised by EIPA under the Framework Contract Nr 2018CE16BAT060. The opinions expressed are those of the contractor only and do not represent the EC's official position

Fraud prevention: Audit and control systems; Reporting fraud; Fraud indicators.

Dermot Byrne,

Head of Authority

ERDF Audit Authority, Ireland

Brussels, 12-13 February 2019

Identifying and preventing fraud & corruption in ESI Funds

Contents

Introduction - ERDF Audit Authority, Ireland Introduction – Ireland & EU Funds

Architecture of audit and control systems

Irregularities and reporting to relevant authorities and OLAF

Definitions of fraud & corruption

Information note on Fraud Indicators for ERDF, ESF and CF

Perspectives on fraud detection and prevention in 2014-2020

Fraud Prevention

This training has been organised by EIPA under the Framework Contract Nr 2018CE16BAT060.

The opinions expressed are those of the contractor only and do not represent the EC's official position.

Internal and EU Audit Unit Department of Public Expenditure and Reform

The Internal and EU Audit Unit provides an internal audit service to, • Department (Ministry) of Public Expenditure and Reform • Department (Ministry) of Finance and is the designated ERDF Audit Authority for Ireland.



Head of Unit

IA & EU

Audit Manager

DPER

Audit Manager

DFIN

Auditor

DFIN

Auditor

EU

Auditor

EU

Auditor

EU

Auditor

DPER

Auditor

EU

Audit Manager

EU

Admin Support

Internal / EU Audit

Internal and EU Audit Unit



Architecture of system

European Regions 2014-20



Brexit …

Impact on Ireland ?



Ireland - regions

Northern Ireland (UK) Border, Midland & Western Region Southern & Eastern Region



Ireland – 2014-20 EU Allocations GDP (nominal) € 263 bn

GDP (per capita) € 56,317

Borders Northern Ireland (UK)

Sea border Wales, England, Scotland (UK) … Iceland

€m

ERDF 160 Border Midland & Western Regional OP

ERDF 249 Southern & Eastern Regional OP

ESF 542 Employability, Inclusion and Learning OP

EAFRD 2,191 Rural Development Programme

EMFF 148 Seafood Development Programme

ETC/PEACE Atlantic Area TCP; Ireland/Scotland/Northern Ireland CBP; Ireland/Wales CBP; Northern Periphery & Artic TCP; North West Europe TCP; INTERREG V Inter-regional Prog.



Ireland Wales Co-operation Programme

ERDF Programmes




During Programme




Cascade Structure – key functions

Certifying

Authority

Intermediate

Body

Managing

Authority

Beneficiary Body receiving EU aid

Annual accounts, certification of expenditure, IT system

Manage OP, Verify delivery, Declaration, Anti-fraud measures

Functions delegated by MA or CA



Architecture of Member State System

Certifying

Authority

Intermediate

Body

Audit

Authority

Managing

Authority

Beneficiary

AUDIT MANAGEMENT & CONTROL SYSTEMS

Financial

controls

including

Management

Verifications

Systems

Audit

Operations

audit EX-POST

(after EU claim)

EX-ANTE

(before EU claim)




European Court of Auditors (ECA)

Commission Audit Services

Certifying Authority

Intermediate Body

Audit Authority

Managing Authority

Systems audits Operations audits

EU oversight of of Audit Authority Beneficiary



Definition of Irregularity

‘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 on

behalf of the Communities,

or by an unjustified item of expenditure’

Irregularity, fraud, corruption



An irregularity does not mean that funds have disappeared, been lost

or wasted (sometimes the view of EU)

The term ‘Irregularity’ in general does also not mean fraud.

Most irregularities arise due to formal or administrative error rather than fraud.

Even when irregularities do arise in projects, funds are generally being used for their intended purpose and when they do occur, they don’t affect the delivery of the project.



Irregularities

Member State Responsibilities for Irregularities in 2014-2020

Article 122.2 of CPR

MS shall prevent, detect and correct irregularities and shall recover amounts unduly paid together with interest on late payments. (general principles)

MS shall notify the Commission (OLAF) of irregularities > €10,000 (co-funded element) and advise OLAF of progress to recover and of any legal proceedings.



Summary - When Is an Irregularity Recognised?

Article 27(b) of 1828/2006 “…first written assessment by a competent authority”

Irregularities only arise on expenditure that has been declared to Commission

Process of identifying irregularities should be mainly driven by the AA

(after the contradictory process)

To a lesser extend by MAs and CAs

Irregularities can also be discovered on audits by the European Commission or the European Court of Auditors



When you do NOT formally report ? (Derogations) Art 122.2 of CPR

If the irregularity consists solely in the failure to execute, in whole or in part, an operation included in the OP owing to the bankruptcy of the beneficiary

Cases voluntarily brought to the attention of the MA or CA by the beneficiary before detection by either of them

Cases which are detected and corrected by the MA or CA before inclusion of the expenditure concerned in a statement of expenditure submitted to the Commission.



Definition of Fraud

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 same effect.

Misapplication of such funds for purposes other than those for which granted.




Definition of Corruption

‘The abuse of (public) position for private gain’.

Note:

Corrupt payments facilitate other frauds e.g. false invoices, phantom expenditure,

failure to meet contract specifications etc.

The most common form of corruption is a receiver (passive corruption) accepting a

bribe from a giver (active corruption).

Note:

It is the element of intention which distinguishes fraud/corruption from irregularity.




Fraud Indicators

Information Note on Fraud Indicators

for ERDF, ESF and CF

COCOF 09/0003/00 - EN



Purpose of Information Note?

To raise fraud awareness.

Disseminate to all bodies managing SF’s.

Use information in Annexes to update procedures.

Ensure management verifications are adequate to deter/detect fraud.

Verify information with third party (cross check information).



Types of Fraud

3 Fraud Types

Intentional manipulation of financial statements

(e.g. inappropriately reported revenues)

Any type of misappropriation of tangible / intangible assets

(e.g. fraudulent expenses)

Corruption

(e.g. bribery, bid rigging, undisclosed conflict of interest, embezzlement)



Fraud Triangle

FINANCIAL PRESSURE

Even if person has motive, Opportunity must be given eg, weak internal controls

Person can develop a justification “I deserve this – they owe me”

“just borrowing money”

The “need or greed” factor

Financial problems, gambling, addictions



Contract / Public Procurement Fraud (16)

1) Corruption – bribes and kickbacks

Corrupt payments; corrupt influence.

2) Undisclose conflict of interest

Favouritism of supplier; side business of employee; declines promotion to

non-procurement role.

3) Collusive Bidding

Complementary (shadow) bids; bid suppression; bid rotation; market division.

4) Unbalanced bidding

Inside information to favoured bidder.




5) Rigged specifications

Specs tailored to meet favoured bidder; Common in IT or technical contracts

6) Leaking bid data

Preferred solution; details of competing bids.

7) Manipulation of bids

Changing bids; losing bids; voiding bids for alleged errors.

8) Unjustified single source awards

Splitting purchases; drafting narrow specs; extending previous contracts.



Contract / Public Procurement Fraud (16 types)

9) Split purchases

Avoid exceeding competition threshold.

10) Co-mingling of contracts

Charging same costs to several orders/contracts.

11) Cost mischarging

Charging costs which are not allowable; manipulated labour costs.

12) Defective Pricing

Failure to disclose current/complete/accurate costs data in bid.




13) Failure to meet contract specifications

Misrepresent ability to meet specifications; sub-standard materials/parts etc.

14) False, inflated or duplicate invoices

Contractor submits invoices; perhaps in collusion with contracting personnel.

15) Phantom service providers

Employee or contractor sets up ficticious company to generate invoices.

16) Product substitution

Inferior quality items to replace those specified in contract.



Labour / Consultancy services Fraud (4 types)

1) Incurred labour cost

Claim false labour (direct or indirect).

2) Uncompensated overtime

Claiming false overtime; contracts worked on during overtime hours.

3) Consulting / professional service

No formal agreement; vague as to services rendered;

no supporting documentation re hours/rates/expenses.

4) Labour categories

Qualifications of contractor staff does not match requirement;

key employees not working on contract.



Perspectives on fraud in Ireland



Fraud awareness?

Culture of corruption?

Developed anti-fraud policies?

Reported irregularities to OLAF?

Culture / tone at the top?

Challenges for the 2014-20 Programmes?

Questions?

[email protected]



mailto:[email protected]

Identifying and preventing fraud & corruption in ESI Funds Fraud … · 2019-02-07 · Corrupt...

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