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Effective Fraud Risk Assessment: Proactive Measures to Safeguard Funds

Learn about anti-fraud requirements, risk assessment tools, and collaborative efforts to combat fraud in EU funds. Discover key principles and authorities involved in fraud prevention. Engage in user-friendly tools and guidance to ensure effective anti-fraud measures are in place.

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Effective Fraud Risk Assessment: Proactive Measures to Safeguard Funds

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  1. FRAUD RISK ASSESSMENT AND ANTI-FRAUD MEASURES Article 125.4 c) CPR ESIF 2014-2020 Mr Leif HÖGNÄS, Fraud Prevention Officer DG Regional and Urban Policy

  2. Anti-fraud requirements in Article 125.4 c) of Regulation 1303/2013 "As regards the financial management and control of the operational programme, the managing authority shall put in place effective and proportionate anti-fraud measures taking into account the risks identified"

  3. Member States' IMS reporting to OLAF on fraudulent irregularities in Cohesion Policy under 2007-2013 Regulations

  4. Underlying objectives of Article 125.4 c) - seek to reduce potential economic cost of fraud to bothEU and national budgets - seek to reduce potential reputational cost of fraud to both EU institutions and national administrations - contribute to the objective that ESI funds are used for theirintendedpurposes

  5. How can the COM and MS work together to reduce fraud risks? - common effort to be shared between COM and Member States: COM guidance, exchange of tools, methods and best practices - the aim should be cost-effective measures to seek to mitigate economic and reputational risk of fraud

  6. Discussions with Member States on the draft guidance note on fraud risk assessment in 2013 and 2014 - 4 June 2013 with Audit Authorities - 16 July 2013 with Member States’ expert group on 2014-2020 legislation - 21 May 2014 in EGESIF committee

  7. Interpretation of 'effective anti-fraud measures' applied in the guidance 1) the management and control system is effective and complies with all EU and national rules 2) the MA assesses the potential impact and likelihood of any known specific fraud risks and seeks to mitigate such risks 3) the audit authority reviews the effectiveness of the management and control system and is sensitive to the risk of fraud in its audit work

  8. Interpretation of 'proportionate anti-fraud measures' applied in the guidance 1) the anti-fraud measures the MA puts in place should be proportionate to the fraud risks identified by the managing authority during its self-assessment 2) the overall benefit of any additional anti-fraud measures should exceed their overall costs 3) proportionate also means that any additional administrative burden must be reduced to a minimum

  9. Main IT tools suggested by the COM 1) Guidance on effective and proportionate anti-fraud measures containing a basic fraud risk assessment tool (Excel-based) 2) A specific risk scoring tool, Arachne, which the COM considers helpful to identify potentially risky operations

  10. Which authorities are involved? Managingauthorities 1) Put in place a minimum set of effective and proportionateanti-fraudmeasures 2) Carry out a fraudriskassessment (self- assessment) Audit authorities 3) Verifywhether the MA'sfraudriskassessmentiscredible and provides a true and fairassessment of the risks and verifythatadequateanti-fraudmeasures are in place to mitigateagainst the risks

  11. Structure of the guidance note on fraud risk assessment 1) Main guidance note 2) Fraud risk assessment tool (Annex 1) 3) Detailed manual for the tool (Annex 1) 4) List of recommended mitigating controls (Annex 2) 5) Template for anti-fraud policy statement (Annex 3) 6) Template for checklist for audit authorities (Annex 4)

  12. Other anti-fraud guidance uploaded on SFC • - Information note on fraud indicators for ERFD, ESF and CF (COCOF 09/0003/00-EN) • - compendium of anonymised cases • - OLAF's practical guide on conflict of interest • - OLAF's practical guide on detection of forged documents • - forthcoming guides from OLAF in 2014: • 1) on anti-fraud strategies and 2) the role of auditors in anti-fraud work

  13. Key principles in the guidance - zero tolerance to fraud - the right tone from the top - cost-efficiency: benefits of anti-fraud measures must exceed overall additional costs - which anti-fraud measures are “effective and proportionate” is conditioned by each situation - the MA’s own self-assessment determines the level and intensity of the necessary anti-fraud measures

  14. User-friendly fraud risk assessment tool 1) Excel-based tool with automatic risk scoring 2) Step-by-step manual in Annex 1 3)Classic risk assessment logic is used: assessment of impact and likelihood of specific fraud risks occurring 4) To help in the identification of risks, the tool has been pre-filled with 18 specific fraud risks (based on COM and MS experience of fraudsters’ modus operandi in Cohesion Policy and commonly recognised and recurring fraud schemes)

  15. User-friendly fraud risk assessment tool 5) Simplification: when the MA concludes that it is not exposed to a specific fraud risk pre-filled in the tool, there is no need to assess that risk, only indicate why a given risk is not relevant 6) Simplification: subsequent risk assessment in e g 2017, 2019 etc can be done as updates of the first risk assessment made e g in 2015 7) The Commission provides further training and advice on request on the use of the tool

  16. Anti-fraud cycle EFFECTIVE PREVENTION ADDITIONAL DETECTIVE EFFORTS CORRECTION OF IRREGULAR AMOUNTS PROSECUTE AS RELEVANT

  17. Fraud prevention - a robust control system is key - raise awareness internally and externally about preventative and detective controls - state the anti-fraudpolicyvisibly: DETER FRAUDSTERS - template for anti-fraudpolicyin the guidance (Annex 3)

  18. Fraud detection - preventative techniques cannot provide absolute protection against fraud - recommendation to complement the risk assessment with data mining tools (the ARACHNE risk scoring tool is offered by the Commission) - embed fraud indicators in checklists (red flags)

  19. Investigation, correction and prosecution - refer cases for investigation in accordance with internal and EU requirements (report to national competent body and OLAF) - recoveraffectedamountsafterknownfinancial impact and reimburse to the EU budget - criminalprosecutionunder national criminallaw

  20. Fraud reporting mechanisms - mechanisms should facilitate the reporting of both suspicions of fraud and control weaknesses that may increase the MA'ssusceptibility to fraud - sufficient coordination on anti-fraud matters with the audit authority and competent investigative authorities in the Member State, including anti-corruption authorities

  21. Communication and training about reporting mechanisms must ensure that staff - understand where they should report suspicions of fraudulent behaviour or control weaknesses - are confident that they can report in confidence and that the organisation does not tolerate retaliation against any staff member who reports suspicions (whistle-blower protection)

  22. Why did the fraud case occur? Learn the lessons! Objective and self-critical examination which should result in clear conclusions about perceived weaknesses and lessons learned, with clear remedial actions as necessary, responsible individuals and deadlines

  23. The tool focuses on fraud risks in relation to three key processes 1) Selection of applicants 2) Implementation and verification of the operations (including public procurement-related fraud risks) 3) Certification and payments

  24. Assess and mitigate against e g the following specific fraud risks - Undisclosed conflict of interest, bribes and kickbacks at project selection stage - Deliberate avoidance of competitive procedures in public procurement (e g unjustified single source award) - Manipulation of public procurement procedures (e g rigged specifications) - Collusive bidding - False or inflated invoices

  25. Basic steps in the fraud risk assessment 1) assess the ‘gross’ risk (= impact x likelihood) of specific pre-identified risks occurring under each of the three key processes (and any other identified risks) 2) identify and assess the effectiveness of controls already in place to mitigate against the identified specific fraud risks 3) assess the net risk 4) as necessary, put in place any further mitigating controls in order to reach a tolerable risk level

  26. Anti-fraud measures and designation of authorities - Annex XIII of Regulation 1303/2013: for the purpose of designation, the MA isrequired to have procedures for putting in place anti-fraudmeasures - designationbased on report and opinion of independent body, including on anti-fraudmeasures - independent body canbe audit authority

  27. Audit authorities' verification of the fraud risk assessment during 2014-2020 - in connection with audits on the functioning of the management and control systems, the audit authority should carry out verifications of the effective implementation of the anti-fraud measures by the MA as early as possible in the programming period. - depending on the results of such audits and on the identified fraud risk environment, follow-up audits may be carried out as often as necessary

  28. And now…demonstration of the • fraudriskassessmenttool

  29. QUESTIONS AND ANSWERS

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