Anti-Fraud Strategy Presentation Hamburg

Anti-Fraud Strategies for Structural
Funds: The Commission Guidance
Barry North MA MBA

Advisor on Prevention of Structural Fund Fraud, Financial Instruments
and Programme Closure
United Kingdom
Your Speaker
Nearly 15 years experience of Working at a senior level in a

Managing Authority
Operational Leadership Roles
• Delivery of ERDF, ESF, Interreg and Rural Funds
Strategic Leadership Roles
• Closure of 2 programming periods
• Fraud Awareness & Prevention
• Planning for Closure of 2007-2013 Funds
Current Role
Providing Consultancy Services on Fraud Prevention and Structural
Fund Closure Strategy
"Anti-Fraud Strategies for Structural Funds" Barry North (September 2017) 2

Contents of Presentation
• Commissions Expectations of Managing Authorities
 Background to the Guidance Note
 What it Contains
 What Member States need to do to meet expectations

Foundation Documents #1
• “Fraud Risk Assessment and Effective and Proportionate Anti-

Fraud Measures” (June 2014) EGESIF 14-0021-00
• “Fighting Corruption in the EU: Communication from the

Commission to the European Parliament, the Council and the
European Economic and Social Committee” COM(2011)308
• “Common Provisions Regulation” (EU)1303/2013;
 Art 72(h) (Management Control Systems and Recovery of

Irregular & Fraudulent funds)
 Art 125(4)c (Requirement to have “…effective and proportionate

anti-fraud measures taking into account the risks identified…”

Foundation Documents #2
• Information Note on Fraud Indicators for ERDF, ESF and CF (2009)

COCOF 09/0003/00-EN
• “Protection of the European Union’s financial interests : Fight

against fraud 2013” (2014) COM(2014)474
• “Implementation of the Commission Anti-Fraud Strategy (CAFS)”

(2014) SWD(2014) 248
• Compendium of Anonymised Cases (OLAF)
• Practical Guide on Conflict of Interest (OLAF)
• Practical Guide on Forged Documents (OLAF)

EGESIF Guidance Note 2015

Cost Effectiveness
• Cost of Fraud • Cost of Fraud

Prevention Measures losses
(Staff) • Impact of adverse
• Impact of FPM on ECA Audit
delivery of • Impact of Fraud
Programmes incidence on
Reputation of MS
Managing Authority has to decide what is the correct balance

Key Elements of MA Strategy
• Fraud Risk Self-Assessment

• Anti-Fraud Measures
 Policy Statement
 Prevention
 Detection & Reporting
 Investigation, Correction & Prosecution
• Independent Assessment of Effectiveness

Fraud Risk Self-Assessment
• Recommended that Self-Assessment Tool (Annex 1 to

EGESIF 14-0021-00) is used
• Focuses on the Key processes:
 Selection of Applicants
 Public Procurement & Labour costs
 Certification of Costs
 Procurement of Technical Assistance

Using the Self-Assessment Tool
Quantify the likelihood and impact of the specific fraud risk (gross risk)
Assess the effectiveness of the current controls in place to mitigate the gross risk
Assess the “net risk” after taking into account the effect of current controls and
their effectiveness i.e. the situation as it is at the current time(“residual risk”)
Assess the effect of the planned additional controls on the net (residual) risk
Define the “Target Risk” i.e. the risk level which the MA considers tolerable

Mitigating Actions
• For each risk, assess whether the net risk (taking into
account existing Management Controls) is acceptable or
not
• Identify what “proportionate” additional controls might be

applied (see Annex 2 of EGESIF 14-0021-00)
• Formulate an Action Plan to put these in place

Who should do the Assessment?
• Managing Authority to lead the Team
• Certifying Authority
• Intermediary Bodies
• Anti-Fraud Services (AFCOS or local equivalent)
NOTE
• Audit Authority may advise but not participate
• Do not outsource (Why?)

When should you Re-assess?
• Recommended that the self-assessment should be

reviewed:
 Routinely every 1-2 years
 If there is a significant amendment to the Programme or

Priorities, delivery structures of staff profile
 If a major Fraud against Structural Funds not previously

anticipated is uncovered either in the Member State or
elsewhere

Now our old friend…..

Sorry….The Anti-Fraud Cycle

Recommended Minimum
Requirements for Anti-Fraud
Measures
Listed in Chapter 4 are the actions necessary to conform

to the Anti-Fraud Cycle:
• Anti-Fraud Policy
• Prevention Measures
• Detection & Reporting
• Investigation, Correction & Prosecution

Anti-Fraud Policy
• Developing an Anti-Fraud Culture
• Resource Planning for Tackling Fraud
• Reporting Mechanisms for suspected Fraud
• Inter-agency Co-operation
See Annex 3 of EGESIF 14-0021-00 for model Policy template

Prevention Measures
• The demonstration of robust systems and the determination to

combat Fraud & Corruption can deter
• Because Fraud can be difficult to prove and repairing damaged

organisational reputations is always challenging, Prevention
measures are vital:
 Robust Internal Controls
 Targeted Risk Assessments
 Training & Awareness Raising
 Developing the right “Ethical Culture”

The “Preventative” Organisation
Ethical Culture
Policy,
Responsibilities,
Training, Reporting
Mechanisms
Internal
Control
Systems
Fraud
Risks

Creating an “Ethical Culture”
Focus on shaping expectations and behaviours

1.Mission Statement
2.Tone from the Top- clear expectations of both staff and
Beneficiaries
3.Code of Conduct- to which staff should routinely declare
adherence:
 Conflicts of Interest
 Gifts & Hospitality Policy
 Confidential Information
 Requirement to report all suspicions of Fraud

Allocation of Responsibilities
• Staff should know who is responsible for:
 Setting up Management Control Systems which comply with EU

requirements
 Verifying that those systems are effective in preventing, detecting

and correcting Fraud and Irregularity
 That all actors in the process from top of Managing Authority to

Beneficiary understands their role and responsibilities

Training & Awareness Raising
• Training for staff should aim to ensure:
 Awareness of the Managing Authority’s Policy and behavioural

expectations
 Skills to identify potential Fraud and weaknesses in the system
 Knowledge of how to report these findings
• As well as formal training, discussions about the Fraud Strategy

should become part of Business as Usual (BAU) within meetings
and internal communications

Internal Control Systems
“The likelihood of detecting potential fraud cases will

increase when management verifications are thorough”
“Staff in charge of desk based and on-the-spot first level

controls must be aware of both Commission & National
guidance on Fraud Indicators”

Data Analysis (“Mining”)
• Data Analysis, within legal frameworks, can strengthen

the Risk Assessment process
• Cross checking between Government agencies, tax

authorities, Credit Reference organisations
• ARACHNE

ARACHNE
• ARACHNE is particularly suited to

measuring risk in public
procurement
• Since 17th Feb 2014 ARACHNE

has been confirmed as compliant
with (EC)45/2001 (Processing of
personal data by Community
Institutions/bodies and data
sharing)
• It is for Member States to decide

whether and how widely to use
ARACHNE

Detection
Principle Measures
• Mindset: Although it is important to have specialist investigation
staff, leaders need to ensure all staff have “…a healthy level of
scepticism…” along with up-to-date knowledge of what might be
considered warning signs of potential fraud
• Fraud Indicators: These can be “Red Flags” where an immediate
action is necessary or “Orange Flags” where issues should be
raised with Fraud specialists. Useful for MA are:
 Information Note on Fraud Indicators (COCOF 09-0003-00)
 Compendium of Anonymised Cases (OLAF)
 Practical Guide on Conflict of Interest (OLAF)
 Practical Guide on Forged Documents (OLAF)

Reporting #1
What?
• Suspicions of Fraud
• Control Weaknesses
How?
• “…MAs should have clear reporting mechanisms ensuring

sufficient co-ordination on anti-fraud matters with audit
authority and competent investigative authorities in the
Member State…”
• All instances should be included in the MA Annual Implementation

Report and an opinion on handling in the Annual Control Report

Reporting #2
• The success of Staff Training/Awareness raising will be judged on:

– Their understanding of where they should report suspicions of
fraud or control weaknesses
– Their confidence that suspicions will be acted upon by managers
– Their believe that their suspicions will be treated confidentially and
there will be no repercussions (i.e. that they will be assumed to
have acted in malice if fraud is not proved)
• Suspected Fraud must be reported to OLAF (Art 122 CPR)
• Beneficiaries must be informed how they can approach OLAF with
information

Investigation, Correction, Prosecution
• Cases must be referred to the Competent Authorities & OLAF

promptly
• MA should conduct a review of Internal Controls, make any
necessary improvements and report action taken in AIR
• MA must have a policy in place for recovery of Fraudulently
received Community funds including Civil and/or Criminal
Proceedings
• It is not acceptable to take no action and repay from State funds
• After court proceedings there must be a full review with
recommendations based on lessons learnt, with deadlines for action
and named individuals charged with actions
• Files related to suspected fraud must be kept secure and where
staff change a moderated handover of evidence must be logged.

Audit of Anti-Fraud Strategy (Annex 4)
• Audit Authorities will be required to Audit the Managing Authorities

Strategy and its implementation
• Guidance is included in Annex 4 of the Guidance
• An initial Audit should take place as early as possible in the

programme lifetime (i.e. within next 12 months)
• Follow up audits should occur as often as deemed necessary by

circumstances in Member State
• Audits should include checks on Intermediate Bodies as appropriate

Personal Assessment of Guidance
• Long Overdue but….
• Comprehensive
• Proportionate
• Useful tool on which Managing Authorities can

strengthen their Anti-Fraud efforts

THANK YOU FOR LISTENING
Barry North MA MBA

Advisor on Prevention of Structural Fund Fraud & Fund Closure
barrym.north1@icloud.com

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Anti-Fraud Strategies for Structural

Funds: The Commission Guidance

Barry North MA MBA

Nearly 15 years experience of Working at a senior level in a

"Anti-Fraud Strategies for Structural Funds" Barry North (September 2017) 2

• Commissions Expectations of Managing Authorities

 Background to the Guidance Note

 What Member States need to do to meet expectations

"Anti-Fraud Strategies for Structural Funds" Barry North (September 2017) 3

• “Fraud Risk Assessment and Effective and Proportionate Anti-

• “Fighting Corruption in the EU: Communication from the

• “Common Provisions Regulation” (EU)1303/2013;

 Art 72(h) (Management Control Systems and Recovery of

 Art 125(4)c (Requirement to have “…effective and proportionate

"Anti-Fraud Strategies for Structural Funds" Barry North (September 2017) 4

• Information Note on Fraud Indicators for ERDF, ESF and CF (2009)

• “Protection of the European Union’s financial interests : Fight

• “Implementation of the Commission Anti-Fraud Strategy (CAFS)”

• Compendium of Anonymised Cases (OLAF)

• Practical Guide on Conflict of Interest (OLAF)

• Practical Guide on Forged Documents (OLAF)

"Anti-Fraud Strategies for Structural Funds" Barry North (September 2017) 5

"Anti-Fraud Strategies for Structural Funds" Barry North (September 2017) 8

• Cost of Fraud • Cost of Fraud

Managing Authority has to decide what is the correct balance

• Fraud Risk Self-Assessment

• Independent Assessment of Effectiveness

"Anti-Fraud Strategies for Structural Funds" Barry North (September 2017) 10

• Recommended that Self-Assessment Tool (Annex 1 to

"Anti-Fraud Strategies for Structural Funds" Barry North (September 2017) 11

"Anti-Fraud Strategies for Structural Funds" Barry North (September 2017) 12

• Identify what “proportionate” additional controls might be

• Formulate an Action Plan to put these in place

"Anti-Fraud Strategies for Structural Funds" Barry North (September 2017) 13

• Managing Authority to lead the Team

• Anti-Fraud Services (AFCOS or local equivalent)

• Audit Authority may advise but not participate

• Do not outsource (Why?)

"Anti-Fraud Strategies for Structural Funds" Barry North (September 2017) 14

• Recommended that the self-assessment should be

 Routinely every 1-2 years

 If there is a significant amendment to the Programme or

 If a major Fraud against Structural Funds not previously

"Anti-Fraud Strategies for Structural Funds" Barry North (September 2017) 15

"Anti-Fraud Strategies for Structural Funds" Barry North (September 2017) 16

"Anti-Fraud Strategies for Structural Funds" Barry North (September 2017) 17

Listed in Chapter 4 are the actions necessary to conform

• Detection & Reporting

• Investigation, Correction & Prosecution

"Anti-Fraud Strategies for Structural Funds" Barry North (September 2017) 18

• Developing an Anti-Fraud Culture

• Resource Planning for Tackling Fraud

• Reporting Mechanisms for suspected Fraud

See Annex 3 of EGESIF 14-0021-00 for model Policy template

"Anti-Fraud Strategies for Structural Funds" Barry North (September 2017) 19

• The demonstration of robust systems and the determination to

• Because Fraud can be difficult to prove and repairing damaged

 Robust Internal Controls

 Targeted Risk Assessments

 Training & Awareness Raising

 Developing the right “Ethical Culture”

"Anti-Fraud Strategies for Structural Funds" Barry North (September 2017) 20

"Anti-Fraud Strategies for Structural Funds" Barry North (September 2017) 21