Audit: EU Does Bad Job of Tackling Fraud

(CN) – The European Union and its member states do a poor job of detecting fraud and prosecuting people and companies that misuse billions of dollars in EU funds, according to auditors.

This was the assessment in a report released Thursday by the European Court of Auditors, an EU body that acts like a government accountability office in the United States.

The report was particularly critical of the European Anti-Fraud Office, or OLAF, the only independent investigative body at the EU level. OLAF is housed within the European Commission, the EU’s executive branch.

“It is time for real action: the Commission should set up an effective system to prevent, detect and deter fraudsters. A reform of OLAF will be the litmus test for the Commission’s commitment to fighting fraud,” Juhan Parts, the report’s lead auditor, said in a statement.

Corruption linked to the misuse of EU funds for such things as building new highways and aid to farmers has long been a problem in Europe, but the auditors said the EU continues to fail at preventing fraud and recovering misspent funds.

The audit did not highlight any individual cases of fraud or talk about high-profile cases, such as those involving political leaders in Eastern Europe who are said to have enriched themselves and friends and family with EU funds.

EU funds have allegedly been misused at staggering levels in the former communist bloc countries of Eastern Europe. The EU spends billions of dollars on infrastructure across the bloc to help modernize countries. The EU’s budget amounts to about $161 billion a year and it is spent on its institutions and various EU projects. Each member state of the bloc has its own national budget.

The EU auditors said the EU “has taken steps to fight fraud against the EU budget” in the past decade, but they said the EU still “lacks comprehensive information on the scale, nature and causes of fraud.”

The new report also said the EU’s anti-fraud investigations tend to be cumbersome and slow, decreasing “the chances to achieve prosecution.”

It noted that about 45 percent of anti-fraud probes result in the prosecution of suspected fraudsters. It said that on average OLAF recommends 17 cases annually for prosecution to national prosecutors, but fewer than half of those cases have led to the prosecution of suspected fraudsters, the audit said.

The audit said the EU also fails to recover enough of the misspent funds. Between 2002 and 2016, the auditors estimated that OLAF found irregularities with about $10.1 billion in EU funds and that only about $3 billion had been recouped by the end of 2016.

“The figures indicate that, in a significant proportion of the cases OLAF closes with a recommendation to recover unduly paid EU money, either no such recovery takes place or the amount recovered is significantly lower than that recommended,” the audit found.

The report urged the EU and member states to take more steps “to take real action against fraud in EU spending.”

Fraud was being under-reported for a number of reasons, among them differing national methods for accounting for fraud and reporting it to the EU, the audit found.

The report noted that some countries that rank poorly on corruption surveys reported finding very few fraud cases – a clear contradiction. One such example is Bulgaria, the audit showed.

The audit said one problem is that the responsibility to prevent fraud is often split between different bodies at the national and EU levels.

According to auditors, the EU commission does not have a good system for finding out how well states are following up on suspected fraud cases and does not do enough to force member states “to take action against fraud.”

The report also said the EU’s rule for barring bad actors is lengthy and has proved ineffective.

Ville Itälä, the director-general at OLAF, questioned the audit’s findings, saying it had “shortcomings in terms of scope, sample and methodology.”

He defended his agency’s work and said many factors to fight fraud “are outside of OLAF’s control and mandate.”

For example, he said his agency has no power to prosecute fraud and that OLAF cannot be blamed if national prosecutors “do not follow-up on our recommendations and take cases further.”

That is set to change by the end of 2020 when the EU establishes a European Public Prosecutor’s Office, which will be the EU’s first body capable of investigating and prosecuting crimes against the EU’s financial interests.

Itälä also said the audit failed to take into account his agency’s work investigating cases involving customs fraud, smuggling and anti-dumping.

He said his agency “has been at the forefront of this fight for over twenty years now, constantly adapting to deal with new forms of fraud, transnational fraud and organized criminals.”

OLAF can point to a number of successes.

In recent years, the agency has uncovered billion-dollar schemes by crime groups to fraudulently import undervalued textiles and shoes and smuggle about 2.3 billion cigarettes into Europe.

The agency has also investigated a mafia-led operation of suspected fraud involving aid applications for “false farmers” in Italy. It also opened an investigation into the alleged misuse of EU funds and European Investment Bank loans by the Volkswagen Group in the German company’s diesel emissions scandal.

In addition, the agency has been active in Eastern Europe where it found alleged irregularities with a conglomerate founded by Czech Prime Minister Andrej Babiš, a company co-owned by Hungarian Prime Minister Viktor Orbán’s son-in-law and business activities connected to powerful Romanian politician Liviu Dragnea.

(Courthouse News reporter Cain Burdeau is based in the European Union.)

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