Member States are responsible for adopting adequate measures to guarantee the proper set up and functioning of their management and control systems to give assurance on the legal and regular use of the EU funding. The obligations of Member States as regards MCS of programmes are related to the prevention, detection and correction of irregularities and infringements of Union law.
The MCS of the MS are based on the functionality of the Managing authorities and Intermediate bodies, Certifying Authorities, beneficiaries (ex-ante control before EU claim). The MCS are subject to controls by the Audit authorities in the Member States and by the European Commission.
In case of deficiency in the MCS, а systemic irregularitiesmay occur. In case substantial improvements in the system are required which expose the EU funds at a significant risk of irregularities, then this constitutes a serious deficiency in the effective functioning of a management and control system.
According to Article 72 of Regulation 1303/2013, management and control systems shall, provide for:
(a) a description of the functions of each body involved in management and control, and the allocation of functions within each body;
(b) compliance with the principle of separation of functions between and within such bodies;
(c) procedures for ensuring the correctness and regularity of expenditure declared;
(d) computerised systems for accounting, for the storage and transmission of financial data and data on indicators, for monitoring and for reporting;
(e) systems for reporting and monitoring where the body responsible entrusts execution of tasks to another body;
(f) arrangements for auditing the functioning of the management and control systems;
(g) systems and procedures to ensure an adequate audit trail;
(h) the prevention, detection and correction of irregularities, including fraud, and the recovery of amounts unduly paid, together with any interest on late payments.
Source: Regulation 1303/2013
See also: Guidance for Member States on Designation Procedure
‘Misappropriation’ is a PIF offence. It means the action of a public official who is directly or indirectly entrusted with the management of funds or assets to commit or disburse funds or appropriate or use assets contrary to the purpose for which they were intended in any way which damages the Union's financial interests.
“Money laundering” is a criminal offence. It is often related to PIF offences. For the purposes of the Anti-Money Laundering Directives (AML), the following conduct, when committed intentionally, shall be regarded as money laundering:
(a) the conversion or transfer of property, knowing that such property is derived from criminal activity or from an act of participation in such activity, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in the commission of such an activity to evade the legal consequences of that person's action;
(b) the concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of, property, knowing that such property is derived from criminal activity or from an act of participation in such an activity;
(c) the acquisition, possession or use of property, knowing, at the time of receipt, that such property was derived from criminal activity or from an act of participation in such an activity;
(d) participation in, association to commit, attempts to commit and aiding, abetting, facilitating and counselling the commission of any of the actions referred to in points (a), (b) and (c).
Money laundering shall be regarded as such even where the activities which generated the property to be laundered were carried out in the territory of another Member State or in that of a third country.
Source: Art. 1 of the AML Directive 2015/849