EU needs to be more proactive in fight against fraud in agricultural spending

05 Jul 2022 --- The European Court of Auditors (ECA) recommends that EU countries engage more proactively against fraudulent practices in agricultural spending. However, the data reported by the European anti-fraud authority (OLAF) states that the “financial impact of the reported fraudulent irregularities for the CAP is generally low.”

For the period 2016-2020, fraud amounted to 0.09 % of total CAP payments of 262 billion euros (US$273 billion). This 0.09% equals 235 million dollars and represents 10.9% of all fraud in EU spending.

While 10.9% of all EU spending fraud is considerable, agricultural spending consists of about 39% of the Union's budget.

“Fraudsters may exploit weaknesses in member states’ checks, so the auditors also recommend that the [European] Commission (EC) should monitor national anti-fraud measures better, provide more concrete guidance, and promote the use of new technologies for preventing and detecting fraud,” says Nikolaos Milionis, the ECA member who led the audit.

Monitoring fraud
The anti-fraud authority OLAF detects several potentially fraudulent irregularities each year. Over the last period analyzed (2018-2020), the organization audited 700 payments and flagged 17 as possibly associated with fraud. 

Technology has been pointed out as the definitive tool to mitigate agricultural fraud.

“Since 2013, the EC has been developing its own risk-scoring IT tool, Arachne. This system can identify projects, beneficiaries and contractors at risk of fraud,” explains Milionis.

Agricultural fraud amounted to over US$235 million for the 2016-2020 period.However, two years after this program was launched, only seven out of the 76 paying Member States paying agencies have uploaded data.

“Since 2018, paying agencies may perform ‘checks-by-monitoring’ based on satellite data. At the end of 2021, three years after the start-up of the tool, ‘checks-by-monitoring’ covered only 13.1% of the total area receiving direct payments,” highlights Milionis.

“The Commission has promoted the use of new technologies in carrying out administrative checks, but implementation takes time,” explains the report. 

Land grabbing exploitation
The ECA flagged as “quite high” the incidence of what they cataloged as land grabbing. Where one appropriates land with an unclear owner (or a non-active one) or acquires it just to receive direct payments while not using it for agricultural practices.

“‘Land-grabbing’ may involve fraudulent practices, such as the falsification of documents, coercion, use of political influence or insider information, manipulation of procedures, or payment of bribes.”

While the ECA flags that it is a matter of the member states to rule on land grabbing, it recommends agencies to use their data to identify red flags and cooperate with local law enforcement authorities.

Harms of fraud
The report explains other fraud cases, such as companies who fail to disclose their links to other companies and should not have benefited from small business grants, as they were part of a larger umbrella corporation.

In some other cases, falsifying documents or simulation of agricultural activity were used to qualify for CAP aid.

“Fraud harms the EU’s financial interests and prevents EU resources from achieving the policy objective,” underscores Milionis.

“We think that the EU should do more to address the risk of fraud in agricultural spending. We expect our report to help the EC and the Member States to develop their anti-fraud capacity under the new common agricultural policy 2023-2027.”

While the ECA has used a moderate tone on this fraud report, this May it was quite critical of climate spending efforts in the EU after finding confusing and overstated information on how the money spent on agriculture actually links to green policies.

Calling for a greater effort on more adequate green spending for the 2023-2027 period.

By Marc Cervera