EUROPEAN COURT OF AUDITORS' SPECIAL REPORT ON THE MANAGEMENT OF OLAF: QUESTIONS & ANSWERS

OLAF/05/10 Brussels, the 12 July 2005

Why has the European Court of Auditors produced this Special Report on OLAF ?
The European Court of Auditors mission is to audit independently the collection and spending of European Union funds and, through this, assess the way that the European institutions discharge these functions. Alongside its annual audit activities the Court also selects budgetary areas or managements topics of specific interest for detailed audit, the Special Report on OLAF issued today is an example of this. It had been requested by the European Parliament and the OLAF Supervisory Committee, and focuses on management issues.

Has there already been a Special Report by the Court on Anti-Fraud in the past ?
The last report written by the ECA on this subject was Special Report Nr 8/98 pdf, published in 1998. This Report analysed the problems of the Commission's former anti-fraud unit, UCLAF, which was then replaced in June 1999 by the European Anti-Fraud Office (OLAF). The Court of Auditor's report shows the progress that has been made since then - even though there is, according to the Court, still room for improvement.

Why did it take OLAF so long to deal with the UCLAF's legacy ?
The Court stresses that the "Office undertook substantial reorganisation measures in November 2003. At the time of the audit, it was evident that at the beginning of 2004 it was still engaged in clearing the burden of the past inherited from UCLAF, its predecessor, and that the new measures were just beginning to have an effect."
OLAF had to deal with a backlog of over 1 400 cases, "a very burdensome legacy owing to the disorganised way in which many of these investigations had been managed", as the Court of Auditors states, adding that "at the same time, UCLAF's staff was reassigned en bloc to the Office, which, until the 2001 overhaul of the establishment plan, limited the new Director's room for manoeuvre." Additionally, OLAF first had to establish an entirely new and reliable system of registration, filing and investigative procedures which had to be applied ex post to the old UCLAF cases.

What have been the main progresses made by OLAF in strengthening the efficiency and follow-up of its investigations ?
The report of the Court of Auditors focuses in the first place on the investigative functions of OLAF by studying each step of the procedure, and discusses the role of OLAF in the follow-up to its investigations.
- Preparation, conduct and follow-up of investigations: The report points out the good progress made by OLAF since the full implementation of its electronic case management system in September 2003. OLAF is further putting in place mechanisms to ensure that the quality and legality of its operations are controlled at managerial level and by its Executive Board, its Judicial Advice and Follow-up Units.
- Duration of the investigation of cases: This point has already been addressed by the Commission's proposal for amending OLAF regulations by setting imperative deadlines for investigations in order to accelerate the procedures (COM(2004)103 final, article 6 of the proposal). As for the over 1400 cases inherited from UCLAF, the Court acknowledges them as a very burdensome legacy for OLAF, and that at the beginning of 2004 the Office was still engaged in clearing the UCLAF cases, with new management and organisational measures just beginning to have an effect. As a matter of fact the average duration of the investigation phase has been reduced from 38 months to 23 months between 2002 and 2004.
- Cooperation with the national authorities: As the Member States manage about 80% of the EU funds, OLAF relies on their cooperation both for its investigations, for the reception of data, and the follow-up of its investigations (recovery of money as well as judicial proceedings by the Member States).
OLAF will pursue work in progress to improve the management of investigations at all stages of the procedure, following the European Court of Auditors' remarks and the changes it has already introduced in 2003 and the risk analysis of data.

Shouldn't OLAF give priority to investigations where the potential financial impact is most important ?
OLAF sets its priorities in an annual working programme. The "zero tolerance" policy in relation to suspected fraud, irregularities and corruption within the institutions implies that OLAF considers internal cases to be particularly important, as even with small financial impact the reputational damage can be enormous.

When it comes to external cases, OLAF has more discretion to decide whether to open an investigation. About 80 percent of the EU budget is executed by the authorities of the Member States and the EC Treaty states that Member States must take the same measures to counter fraud affecting the financial interests of the Community as they take to counter fraud affecting their own financial interests. This means that there is often a responsible authority within each Member State which could investigate any given case, so that the protection of the financial interests of the Community can be guaranteed without activity by OLAF. Only when it comes to the EU's direct expenditure (e.g. external aid, research), where no national authority intervenes, is OLAF normally the investigative service closest to the matter. A range of criteria are applied to decide whether a case should be opened and whether it is high, average or low priority. The most important criteria: Are there serious criminal or disciplinary offences potentially involved? How important is the financial impact? Could the irregularity have a particularly negative impact on the reputation and credibility of European institutions and bodies?

The European Court of Auditors is very critical on the follow-up of cases, both on the financial and judicial levels, what is OLAF's position ?
Activities following-up investigations, such as recovery of money lost or criminal prosecutions, provide only a partial picture of OLAF's effectiveness. It is usually up to national authorities and, in some cases, to Community institutions, to take decisions on further steps that are beyond OLAF's control. This, for example, is obvious in criminal prosecutions: it is the exclusive responsibility of the Member States' judiciary to decide how to deal with information received from OLAF about corruption and fraud affecting the EU's financial interests. The Office has no influence on the duration of criminal proceedings. The European Public Prosecutor, an idea actively supported by the Commission, is meant to fill this gap between an OLAF and national judiciaries.

The Auditors' report points out the fact that the Directorate General OLAF is in charge of legislative affairs and recovery of funds on the one hand and an independent administrative investigations body on the other. Is this a good combination ?
A: According to the Court, OLAF benefits from its hybrid status - both as an independent investigative body and as a part of the Commission. This setup is a result of past decisions of the Commission and of the legal basis at the very foundation of OLAF. A number of investigative and operational competencies exercised by OLAF are conferred to the Commission by Community law. This hybrid status has enabled synergies between the independent investigations and the subsequent follow-up on their results. The investigative experience can serve to facilitate later recovery measures and can contribute to streamlining legislative proposals in the field of anti-fraud.

According to the Court of Auditors an independent control of legality is not properly assured during the course of an investigation ?
The legal framework currently followed by OLAF guarantees the respect of fundamental rights. As the Court rightly points out, OLAF has also given itself a Manual on proceedings. It contains detailed procedural rules for its investigations and takes account of the rights of witnesses and of any person subject to an investigation. All investigative steps from the first reception of information until the final case report are being carried out according to the rules established in this Manual. The proceedings established in the Manual also take into account the rights of the persons under investigation and of the witnesses.
The internal control of the quality and legality of ongoing investigations is, at present, the domain of the management hierarchy (senior management). The OLAF Management Board oversees the investigations. The magistrates in OLAF's judicial advice Unit check all dossiers that are to be transmitted to the national judiciary. OLAF's Internal Audit will also check on procedural aspects within the Office.
The external control of the lawfulness of investigations undertaken by OLAF is guaranteed by the European Court of First Instance and the European Court of Justice and, indirectly, by the national judicial bodies. A legally binding set of rules of proceedings can only be established by the Community legislator. This question is part of the ongoing discussion about the reform of OLAF's regulatory framework.

What is the appreciation of the ECA on the governance of OLAF ?
- The ECA clearly acknowledges in this report that the dual status of OLAF has not hindered the independence of OLAF investigative functions, but enabled synergies in terms of administrative support and expertise on the protection of the financial interests of the EU.
- On reporting, the Commission and OLAF have already proceeded at rationalisation by synchronising the annual and activity reporting.
- The Commission shares the views of the Court of Auditors on the need to review the relationship of the Office with its supervisory committee, and has set out possible solutions in its proposal to amend Regulation (EC) n°1073/99. This proposal in particular suggests to strengthen the information flow between OLAF and the institutions, and to precise both the procedural guarantees for the individuals concerned by the investigations and the role of the supervisory committee (IP/04/186).

The European court of Auditors is critical on the cooperation of OLAF with the member states.
As the EC Treaty obliges the Member States to fight fraud committed against the financial interests of the EU, their investigative services co-operate closely with OLAF during investigations. On the other hand, OLAF acts as a service platform for the Member states whenever they need assistance for an operation - for example when customs services fight smuggling. OLAF provides training and organises seminars and has played an important role in the preparation for enlargement. However, the co-operation of the Member States and their authorities is also necessary, as evidenced by the long delays after a final decision is made on a case after OLAF transmitted to the competent bodies. However, OLAF recognizes that its operational partners in the Member States have their own operational priorities.

Valérie Rampi
Spokesperson Administration, Audit and Anti-Fraud

Tél : +32-2-2966367
Email

Alessandro Butticé
Head of Communication, PR and Spokesman Unit
Tel : +32 (0)2 296.54.25
Fax : +32 (0)2 299.81.01
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