AFCOS System Establishment in Montenegro
I. AFCOS SYSTEM DEFINITION
In accordance with the requirements of the European Commission (EC), each candidate country should establish so called AFCOS system (Anti-Fraud Coordination Service - System for Anti-Fraud) responsible for the suppression of irregularities and frauds that may arise from using the funds of the European Union (EU), as well as for the provision of more efficient and more qualitative protection of its of its financial interests. This system is functioning in all candidate countries and EU member states, since 2001, and it consists from so called AFCOS office and AFCOS network. As outlined in the EC documentfrom 2002[1],, the establishment of the AFCOS office represents the institutional building measure,whereas the country is showing the readiness in providing efficient protection, as well as the protection of financial interests of the European Community in the same way as if a country is using its own funds..
The aim of the AFCOS office is the cooperation with OLAF (European Anti-Fraud Office-Anti-Fraud Office of the European Commission), as well as with other AFCOS offices in the EU member states, as for the fight against frauds and irregularities that may arise from using the EU funds. The OLAF represents an independent EU service and it is obliged to identify and take actions aimed at removing all types of fraud, corruption and other illegal actions that are jeopardizing the EU financial interests. The task of this institution is the fight against any kind or form of financial abuse and corruption. OLAF’s competencies may refer to the third countries with whom the EU member states have signed contracts. OLAF submitted its first Report in June 2000. One of the first note in the Report was that the rules governing financial operations within the EU must be aligned, sincethe differences were envisaged among the member states. Therefore the need arose for establishment of the unified system that would protect the financial interests of the European Community (EC).
Although the organizational structure, mandate and the manner of functioning of the AFCOS office differentiates from country to country, taking into account the specificity of each country, this office should have the mandate to coordinate within a countryall legislative, administrative and operational duties and activities related the protection of the EU financial interests, and to ensure cooperation with OLAF. These activities include:
• definition, coordination in implementation, and implementation of a comprehensive anti-fraud strategy at the national level;
• identification of possible irregularities in the national system in relation to the management of the EU funds, including pre-accession funds;
• initiative for the legislative amendments and administrative framework in order to enable the effective protection of the EU financial interests, implying the establishment of joint coordination structures and mechanisms of other institutions involved in the protection of the EU financial interests;
• cooperation between national institutions (administrative, judicial bodies, investigation bodies) as well as cooperation and exchange of information between these authorities and OLAF, in cases of suspected fraud or irregularity directed to the EU funds.
Since the AFCOS represents the most important contact for OLAF, continuous cooperation and exchange of information with this institution is of extreme importance for successful performance. Therefore, the AFCOS is obliged to report on identified irregularities to OLAF, as well as the reports on any changes in processing of irregularities discovered or punishments. AFCOS’s information must always be available to OLAF, in order to enable the inspectors responsible for administrative investigations to analyze the fraud and its processing in a timely manner.
II. Definition of Irregularities and Frauds, the significance of the Irregularity Officer
Having in mind the fact that the EU passes provisions in accordance with national legislation, any violation of such provisions represents the irregularity. Therefore, it implies that an event which is not in accordance with legislation and impacts the expenditures which is in contradiction with the manner of spending the EU general budget. Irregularities may arise in various stages of the project, such as the following:
• technicalirregularities, arising from delivery of materials or production of lower quality level than contracted, relating especially to the works or supply;
• contractual irregularities, arising from the irregular application of contractual provisions;
• financial irregularities, representing illegal use or theft of the EU assistance funds, including the corruption, which are controlled by the internal and external audit;
• administrative irregularities, arising from the failure to meet established rules (e.g., certain rules established by contract or financial regulations).
Each of aforementioned irregularities may be deliberate or inadvertent, with or without the financial impact on the EU budget.
As a violation consequence of the EU budget, fraud arises representing any deliberate presentation of false or incomplete statements. This is primarily related to:
• the use or presentation of wrongly, false or incomplete statements or documents, resulting in the wrong appropriation or retention of the general budget of the EU funds;
• wrong, un earmarked use of allocated funds.
Regardless the type of irregularities, it is necessary to appoint irregularity officersin every IPA institution, who would monitor and report on irregularities. Referring to received information and analyzing the completed forms, the officer would populate the Reports on irregularities that would be submitted to the NAO (National Accrediting Officer), being the person responsible for the overall financial management, i.e., for efficient and effective functioning of the pre-accession funds. Furthermore, the NAO would submit the Report to the EC and the OLAF.
III. Institutional Framework for AFCOS System Implementing
Montenegro as a beneficiary country of the EU pre-accession funds, and future beneficiary of structural funds, is obliged to ensure the legislative framework for the protection of the EU financial interests, as well as to establish efficient and effective AFCOS system, which would prevent irregularities and fraud in connection with the use of aforementioned funds.
Whit regard to the establishment of the institutional framework for the overall functioning of the AFCOS system, the EC did not strictly limited the manner of establishing the AFCOS system in a particular country, but the positive experiences of neighboring countries (Slovenia and Croatia) had shown that the best recommendation is to establish the AFCOS and to operate as the system composed of three parts, which would include the following structure:
• authorities and institutions that manage and use the EU pre-accession assistance funds, and represent a sort of system of reporting on irregularities. These systems would consist of officers appointed to report irregularities in the institutions involved in implementing programs and projects financed from the EU. These authorities would be the National Fund (NF), sector financing and contracting the EU assistance funds (CFCU), Project Implementation Unit (PIU) under the direction of the Senior Programming Officer in certain ministries and the Ministry of European Integration (MEI). Their duty would be to submit the Report on irregularities to the AFCOS office.
• bodies that deal with combating fraud, corruption or any other form of irregularities in the system (so called AFCOS network). Institutions that would represent the AFCOS network would at the same time represent the working group responsible for: control over spending of the EU funds, regardless of whether the funds relate to pre-accession funds, or the EU accession funds; Treasury and State Audit; tax issues, customs issues, issues of crime and special police related to the EU funds ; prosecution issues. Aforementioned institutions would have their representatives in the AFCOS network that would be responsible for processing identified irregularities.
• Independent department for the prevention of irregularities and frauds (so called AFCOS office, having a coordination role and relationship with OLAF). This office in the Ministry of Finance under the direct authority of the Minister, should coordinate the work of institutions in the AFCOS system performing legislative, administrative and operational activities in order to protect financial interests of the EU, and prepare a strategy on the overall functioning of the AFCOS system, and would have the direct cooperation with OLAF. Officers of aforementioned office would meet with the representatives of the AFCOS system once a month, i.e., when necessary.
All bodies and institutions in AFCOS system would be obliged to cooperate with AFCOS office or exchange information, as well as to provide assistance related to the area of protecting the EU financial interests.
Potential agencies and institutions of the AFCOS network would be as follows:
• Ministry of Justice;
• Ministry of Interior and Public Administration;
• Police Administration;
• Public Procurement Directorate; • Tax Administration;
• Customs Administration;
• State Audit Institution;
• SupremeState Prosecutor;
• Agency for Anti-Corruption Initiative.
In accordance with the above, the overall functioning of the AFCOS system, is indicated in the following Chart:
Chart: AFCOS system
IV. AFCOS SYSTEM WAY OF FUNCTIONING
For the operation of the system, in the first place it is necessary to appoint the Irregularity Officer in aforementioned institutions participating in the IPA projects. The responsibility of officers, apart from identifying and reporting on new irregularities would be to update the data on irregularities that have already occurred.
The procedure for reporting of irregularities must follow the hierarchy established in these institutions. Accordingly, the irregularity officer in the Project Implementation Units (PIU’s) in certain ministries, would monitor and record all irregularities in these units, and after signed reports by the SPO, submit it to the officer who is responsible for irregularities in the CFCU. Irregularity officer would also make a report of all irregularities in the CFCU and together with the reports from the PIU unit delivers it to the signature of the PAO (Programme Authorizing Officer managing the CFCU unit). PAO submits the report to the irregularity officer appointed in the NF, who is integrating all reports and submitting it to the irregularity office in the NF and AFCOS office.
Overview Chart indicating the irregularity reporting system:
The AFCOS office is checking in details all received reports from the system of reporting on irregularities, examining the case of the existence of some deficiencies in reports. The Reports are being returned to the responsible irregularities officer in an institution.
Representatives from institutions of AFCOS networks make their own reports on the irregularities and submit it to the AFCOS office. After that, AFCOS Office combines all reports and forwards them to the NAO for signature. Since the NAO is responsible for any kind of irregularities in the use of EU funds, the NAO sends OLAF all aforementioned information. OLAF is obliged to implement certain measures in order to eliminate irregularities in the beneficiary country where irregularities were identified.
V. CONCLUSION
In order to point out the importance of the AFCOS system, from the establishment of OLAF in 1999 till now, have succeeded in return of funds in the amount exceeding 6.2 billion €. Only in 2008, the return of funds was made in the amount of 147 million €, while the estimated return of 315 million € for cases that are still in progress, which is represented by the following table depending on the area where the most frequent irregularity or fraud are identified. It is necessary to emphasize, that these doubts represent only a part of the total refund amount, after the fraud or other types of irregularity identification, because most of the return of funds is made by the member states.
Table[2]: Detailed breakdown of return of funds in Million Euros by OLAF
Key Areas / 2004 / 2005 / 2006 / 2007 / 2008 / Total: / The Amount of return of funds for cases in processAgriculture / 0,07 / 14,43 / 1,18 / 0,84 / 2,0 / 18,4 / 147,2
Customs / 1,58 / 63,05 / 0,13 / 3,34 / 14,2 / 82,2 / 142,8
Internal EU policy / 1,86 / 0,18 / 0,25 / 0,49 / 0,5 / 3,3 / 1,2
Internal Investigations / 0,04 / 0,00 / 2,16 / 0,13 / 0,2 / 2,4 / 1,9
External Assistance / 2,01 / 31,78 / 92,72 / 0,90 / 1,9 / 129,3 / 2,5
Structural funds / 192,62 / 97,96 / 17,22 / 197,67 / 128,0 / 634,1 / 18,7
Total: / 198,17 / 207,40 / 113,66 / 203,37 / 146,8 / 869,7 / 314,3
Source: OLAF, Annual Report for 2009
Taking into consideration the above data, we come to the conclusion that the role of the OLAF and the AFCOS system is important with the objective of protecting financial interests of the EU, it is necessary to establish qualitative system to combat irregularities and fraud in all beneficiary countries of the EU funds.
Ivana Koljenšić, Independent Advisor III
Bojana Pocek, Independent Advisor III
CFCU
[1] Document of the European Commission - OLAF: the strengthening of institutional capacities of the candidate countries for the protection of the financial interest of the EC: Main tasks and responsibilities of the AFCOS system, Brussels 2002.
[2]