Member States have further to go in combating fraud, despite gains made in implementing European Union rules to prevent, detect, and report fraud, according to a report released by the European Commission last week.

The Protection of the European Union’s Financial Interests – Fight Against Fraud 2013 Annual Report details efforts to combat fraud involving EU budget funds as well as the progress made by Member States in implementing the Anti-Fraud Coordination Service (AFCOS) mandated by legislation last year.

Overall, the report found that on the expenditure side, €248 million in EU funds were affected by fraud in 2013, a drop of 21 percent from the previous year.  On the revenue side, suspected or confirmed fraud cost the bloc €61 million, also a decrease of 21 percent from the previous year. Officials credited the improvement in part to measures taken over the past five years to toughen anti-fraud rules, including the attempt to harmonize definitions of crimes against the budget and to introduce minimum penalties.

Because it is the last annual report of the current commissioners, the report also looked back at the progress over the commission’s five-year term.

“In the last five years, the Commission has taken the fight against fraud to a new level. Our commitment to protect citizens’ money from fraudsters is clear from the tough and ambitious new rules, initiatives, and frameworks we have put forward,” Algirdas Semeta, commissioner for Taxation, Customs, Statistics, and Anti-Fraud, said in a statement. “Now it is time for Member States to play their part more effectively. They need to step up their game in preventing, detecting, and prosecuting those who try to de-fraud the EU budget.”

Among the accomplishments over the past five years, the commission pointed to “unprecedented” legal and administrative measures, the adoption of anti-fraud strategies specific to certain sectors, last year’s adoption of legislation retooling the European Anti-Fraud Office (OLAF), and the proposal to establish a European Public Prosecutor’s Office.

But the report also said Member States have more work to do, and recommended that Member States ensure their controls are risk-based and targeted. The report noted there are still significant differences in the amount of fraudulent activity detected by Member States, which could be due to differing approaches or “non-homogeneous interpretations” in implementing the EU directives.

Part of the new regulation concerning OLAF was a requirement for all Member States to designate an Anti-Fraud Coordination Service (AFCOS) to help improve cooperation with OLAF in investigations and ease the exchange of information. So far all but four Member States – Ireland, Spain, Luxembourg, and Sweden -- have designated the service. Most of those lagging behind have plans to comply by the end of this year, with Spain expecting to take two years before final implementation, the report said. The report also noted, however, that only a few Member States empowered their AFCOS to conduct investigations rather than just coordinate them. While many have designated the coordination service, several states are still in the process of setting them up, the report said.

The Commission said it will review the AFCOS in each Member State to ensure compliance with the OLAF regulation. The report urged the four remaining nations to designate AFCOS by the end of this year.

Coordination between agencies is a key factor. Just under half of the irregularities reported as fraudulent last year were uncovered by anti-fraud authorities, criminal investigations, or other external controls, while the other half were detected by administrative control systems through specific sectors, the report said.

“This underlines the importance of external controls in the fight against fraud and the need for strong coordination with managing and audit authorities,” the report said.

Many in the 28-nation bloc passed general legislation to tighten public procurement rules, but 10 nations, including the U.K., Italy and Greece, introduced targeted procurement rules to reduce corruption, boost transparency, and increase the effectiveness of control and audit functions, the report said. Others like Belgium and Denmark also passed separate anti-corruption measures aimed at financial crime and money laundering. The report recommended all Member States look to the commission’s anti-fraud reports for best practices, particularly in procurement.

The commission’s previous report called on Member States to establish appropriate criminal sanctions for fraud. While most have passed the legislation, consistency is lacking in applying the sanctions for fraud as well as limitation periods for prosecution, the report said.

Despite legislative improvements, the impact is “not as evident” as expected, the report said. It pointed to a decreasing number of cases flagged for fraud or other irregularities, as well as issues with the quality of information being reported. The commission urged Member States to step up efforts to ensure the timely reporting of fraud cases and to enter reliable information on cases into the OWNRES reporting system.

 

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