DRAFT GUIDANCE NOTE FOR MEMBER STATES ON FRAUD RISK ASSESSMENT 2014-2020

1. DRAFT GUIDANCE NOTE FOR MEMBER STATES ONFRAUD RISK ASSESSMENT 2014-2020 Leif Högnäs, DG Regional and Urban Policy Expert Group Meeting 16 July 2013

2. Requirement for anti-fraud measures in the 2014-2020 legislative proposals Article 114.4 c) of COM(2011)615: As regards the financial management and control of the operational programme, the managingauthorityshall put in place effective and proportionateanti-fraudmeasurestakingintoaccount the risksidentified

3. Whois the guidance note intended for? - the guidance note ismainly for the MA, whichwillberesponsible for the fraudriskassessment and putting in place adequateanti-fraudmeasures - designationcriteria: procedures for putting in place effective and proportionateanti-fraudmeasures - the Commission also provides guidance for the audit authority's verification of the compliance of the managing authority with article 114.4 c)

4. Structure of the guidance note The guidance note plus 4 annexes: Annex 1: the tool, includingdetailed instructions Annex 2: list of recommendedmitigatingcontrols Annex 3: template for a voluntary anti-fraud policy statement Annex 4: suggested checklist for the audit authority

5. General anti-fraud guidance isalsoprovided in section 5

6. Adequateinternal coordination and response to fraud suspicions - MAs should have clear reporting mechanisms ensuring sufficient coordination on anti-fraud matters with the audit authority and competent investigative authorities in the Member State, including anti-corruption authorities - the MA and AA must transmit suspicious cases to the competent authority in the Member State for investigation and sanctions, including anti-corruption authorities, where relevant

7. The right tonefrom the top is key - voluntary template in Annex 3 for articulation of MA's official position on fraud, corruption and conflict of interest - Managing authorities are also advised to take notice of Transparency International's Corruption Perception Index (CPI), when assessing to what extent its overall operating environment is perceived to be exposed to potential corruption and fraud

8. The guidance recommendsthatManagingAuthorities for 2014-2020: 1) MA must adopt a proactive, structured and targeted approach to managing the risk of fraud by assessing the degree of exposure to specific fraud risks 2) when setting up the management and control systems for 2014-2020, MA must embed effective and proportionate anti-fraud measures in the management and control system, taking into the risks identified 3) during the programming period, the fraud risk assessment must be carried out annually or bi-annually NB: the anti-fraud measures should be proportionate to the identified fraud risks

9. Practicaltoolprovided for the ManagingAuthorities: - self-assessment team to carry out the assessment - the toolaimsatadding value to soundfinancial management of funds - avoid as much as possible adding to administrative burden (embedanti-fraudmeasures in the (existing) management and control system) - end-user, on-the-spot consultation of the tool in 3 Member States: HU, PL and the UK

10. Focus on fraudrisks in relation to three key processes - selection of applicants - implementation and verification of the operations - certification and payments

11. Basic steps in the methodology 1) assess the ‘gross’ risk of specific pre-identified risks occurring under each of the three key processes (plus add 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

12. Structure of the tool, example Specific risk nr IR 7: Contractors violate the contract conditions by non-delivery of agreed products or alterations and substitution with inferior quality: - Product substitution or - Non-existence of products or operation not carried out in line with grant agreement

13. Structure of the tool, example • RISK DESCRIPTION for IR 7: • 1) Product substitution: third parties may substitute inferior quality items for those which are specified in the contract or otherwise fail to meet contract specifications and then knowingly misrepresent that they have. Beneficiaries may be complicit in this fraud or 2) Non-existence of products or operation not carried out in line with grant agreement: some or all products or services to be supplied as part of a contract may not be provided, or the contract was knowingly not carried out in line with the grant agreement.

14. Structure of the tool GROSS RISK - the total risk score willbeautomaticallycalculated by the tool by multiplying the score given by the assessment team to risk impact and risklikelihood EXISTING CONTROLS- assesseffect of existingcontrols on risk impact and risklikelihood (i e grossrisk) by providing a score for each NET RISK- the net risk score (i e the riskaftercurrentcontrols) isautomaticallycalculated by the tool

15. Structure of the tool ACTION PLAN- when necessary, introduce a mitigating control against a specific net risk which is significant or critical (suggested mitigating controls are provided in Annex 2) - E g suggested control to mitigate against product substitution: requirement by MA for beneficiaries to request works certificates or other forms of verification certificates, awarded by an independent third party, on the completion of the contract. TARGET RISK- target risk is automatically calculated by the tool

16. Thank you for your attention! Questions?