effective and proportionate anti-fraud measures in the
TRANSCRIPT
Stavri Ttofa Verifications and Certification
Directorate Treasury of the Republic of Cyprus
8 December 2016
Effective and proportionate anti-fraud measures in the Management and
Control of EU Funds in Cyprus 2014-2020 Programming Period
Main findings – total costs of corruption in the studied sectors OLAF Study 2013 - corruption in public procurement in the EU
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Suspected Fraud examples in co-financed Projects & Schemes – PP2007-2013
• Manipulation of cost claims - Salary payments to employees less than claimed amount.
• Avoidance of required competitive procedure for investment costs – public beneficiaries
• SME falsified data - claimed staff costs and then invoices for same work performed
Research Scheme
• Beneficiary claimed same investment costs from two different aid schemes – double funding
Productive Investment
Scheme
• Beneficiaries claim staff costs for employees hired before the start of the scheme or claim staff costs not actually paid – manipulation of cost claims
• “Hiring” of partner in another company
Employment Schemes
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Suspected Fraud examples in co-financed Projects & Schemes – PP2007-2013
• Falsification of data when submitting grant application for a vessel that had been destroyed – manipulation of cost claims
• Presenting invoices for work that had been undertaken with own beneficiary resources
Fisheries Schemes
• Salary payments to employees less than claimed amount. Bank cheques presented then withdrawn and replaced with lower cash payments – manipulation of cost claims
• Falsified documents by employer • Set up new companies to artificially “employ” staff which they
fire from another company
Flexible Employment
Schemes
• Conflict of interest – hiring as project evaluator the same contractor previously hired as the project manager for the project
• Officials accepting bribes in order to assign contracts to specific bidder or kickbacks after approving claims for contract variations
Public Procurement
Projects 4
Commission Recommendations of policy measures to reduce corruption
Well structured thorough data on projects, including on beneficial owners and transparency Centralised collection of data Training, rotation vetting of staff, etc. Performing risk assessments, market analyses, using SMART tools for detection of anomalies Independent audits/evaluations Whistleblower protection Independent investigative services Specialised institutions to fight against procurement corruption 5
Key Players in the Management of EU Funds at Member State Level
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Financial Management and Control responsibilities of the Managing Authority - new regulatory obligations PP2014-2020
Ensure Projects comply with Community and National
rules
Verify that co-financed products/services are
delivered
Verify that expenditure declared by beneficiaries
has actually been incurred
Put in place effective and proportionate anti-fraud
measures taking into account the risks identified
Draw up the management declaration and annual
summary 7
Proactive and proportionate anti-fraud measures with cost-effective means
All programme authorities should be committed to zero tolerance to fraud, starting with the adoption of the right tone from the top.
A well-targeted fraud risk assessment, combined with a clearly communicated commitment to combat fraud can send a clear message to potential fraudsters
Effectively implemented robust control systems can considerably reduce the fraud risk but cannot completely eliminate the risk of fraud occurring or remaining undetected
Systems also have to ensure that procedures are in place to detect frauds and to take appropriate measures once a suspected case of fraud is detected
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Adherence to the principle of sound financial management in the functioning of the CY MCS
contributes to the prevention of fraud
A detailed and clear description of the responsibilities of each institution involved in management and control
Single Integrated Information System for the electronic storage and exchange of data
Procedures for preventing, detecting and correcting irregularities (ensure legality, regularity, audit trail)
The information provided through relevant documents, circulars and guidelines
The existence of national codes of conduct and ethical standards for public officials and services
Conducting training for staff involved in management and control processes
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Internal control systems
On-the-spot controls must be risk-based and carried out with sufficient coverage
The likelihood of detecting potential fraud cases will increase
Staff in charge of desk and on the-spot management verifications aware of the Commission and any national guidance on fraud indicators
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The strongest defence against potential fraud is a well-designed and operated system of internal control, where controls are focused at effectively mitigating the identified risks
Risk based controls – Public Procurement Compliance at various stages
Compliance with National
and Community Rules for Public
Procurement
1. Before publication of tender notice and finalisation of tender documents
2. Before publication of addendums to tender documents
3. Before award of tender
4. Before initiation of a negotiation procedure
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Performed by the Treasury of the
Republic if above EU thresholds
Risk based controls – Public Procurement Compliance at various stages
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Quality checks of designs and tender
documents for contracts > €3,5mil
Compliance control of contract modifications during implementation
Performed by the Treasury of the
Republic
Performed by Central Variations and Claims
Committee
Risk based controls – On the spot controls for aid scheme projects
• On the spot controls for all projects before project start and before every payment
Productive investment schemes
• On the spot controls for all projects before final payment Research Schemes
• On the spot controls for a sample of projects during the period of employment
Employment Schemes
• On the spot controls for all projects before every payment Fisheries Schemes
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Overall Control Environment - Appropriate mind-set
Specialised and focused detection techniques with designated individuals having responsibility for conducting them
Those involved in implementing a structural funding cycle have a role to play in spotting potentially fraudulent activity and then acting upon it
Cultivation of an appropriate mind-set
A healthy level of scepticism should be encouraged, together with an up-to-date awareness of what could constitute potential fraud warning signs
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Fraud risk self-assessment Tool for Managing Authorities
Assess the impact and likelihood of common fraud risks occurring.
Recommended mitigating controls which could help further reduce any remaining risks, not yet effectively addressed by current controls
Deliver fraud responses which are proportionate to the risks and tailored to the specific situations related to the delivery of the Funds in a particular programme
Further develop specific fraud indicators (red flags)
Ensure effective cooperation and coordination between the managing authority, the audit authority and investigative bodies
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Performed before the start of implementation of the Programmes and then annually re-assessed
Key processes most open to manipulation targeted by the Tool
Three selected key processes considered to be most exposed
to specific fraud risks :
certification and
payments
implementation and
verification of the
operations
selection of applicants
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procurement and labour costs
Detection and reporting
Managing authority needs systems that detect fraudulent behaviour in a timely manner.
Such techniques include analytical procedures to highlight anomalies (eg data mining tools, such as the ARACHNE tool), robust reporting mechanisms and on-going risk assessments.
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Annual Reporting to the Commission
Reporting to the Commission on the results of effective anti-fraud measures and any suspected instances of fraud will be part of the annual summary report and management opinion (MA)
The annual control report (AA) will comprise a section on fraud suspicions detected during the year
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Investigation, correction and prosecution
Once a suspicion of fraud has been raised and correctly reported MA must transmit the case to the competent authority in the Member State for investigation and sanctions, including anti-corruption authorities where relevant, and inform OLAF accordingly. The MA should also conduct a thorough and critical review of any related internal control systems that may have exposed them to the potential or proven fraud. 19
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What we see of corruption is sometimes compared to icebergs; the fact that you see little of it should not give you a false sense of security
