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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.
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.
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
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.
Architecture of system
European Regions 2014-20
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.
Brexit …
Impact on Ireland ?
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.
Ireland - regions
Northern Ireland (UK) Border, Midland & Western Region Southern & Eastern Region
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.
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.
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.
Ireland Wales Co-operation Programme
ERDF Programmes
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.
Architecture of system
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.
Architecture of system
During Programme
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.
Architecture of system
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
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.
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)
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.
Architecture of system
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
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.
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
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.
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.
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.
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.
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.
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
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.
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.
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.
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.
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.
Irregularity, fraud, corruption
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.
Irregularity, fraud, corruption
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 Indicators
Information Note on Fraud Indicators
for ERDF, ESF and CF
COCOF 09/0003/00 - EN
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.
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).
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.
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)
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 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
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.
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.
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.
Contract / Public Procurement Fraud (16)
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.
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.
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.
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.
Contract / Public Procurement Fraud (16)
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.
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.
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.
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.
Perspectives on fraud in Ireland
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 awareness?
Culture of corruption?
Developed anti-fraud policies?
Reported irregularities to OLAF?
Culture / tone at the top?
Challenges for the 2014-20 Programmes?
Questions?
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.