In the general context Recovery of funds is a term used to describe the use of administrative or judicial proceedings both on national and EU level with aim to restore payments in the budget.
Recovery by the European Commission may be requested by a Member State in the following situations:
Recovery of funds may occur on national level. Usually it is the Managing authority of the corresponding programme which may request the recovery by the beneficiary, for example:
The Member States shall in the first instance be responsible for investigating irregularities and for making the financial corrections required and pursuing recoveries.
Distinction between Withdraw of funds and Recovery of funds.
Pursuant to Article 122 of CPR Regulation 1303/2013, Member States are required to correct and recover amounts unduly paid. Member States have two choices:
1) Withdrawal: withdrawing the irregular expenditure from the programme immediately when it has been detected, by deducting it from the next interim payment application, thereby releasing EU funding for commitment to other operations.
2) Recovery: leaving the expenditure, for the time being in the programme, pending the outcome of proceedings to recover the unduly paid grant from the beneficiaries, and deducting the expenditure from the next interim payment application only once recovery is effective. However, at the time of submission of accounts, different treatment should be applied with regard to expenditure in the current accounting year and expenditure already certified in previous accounting years.
Source: Art. 122 of CPR Regulation 1303/2013
Red flags are indicators which serve to highlight developments or situations where there might be irregularities or suspected fraud. The red flag is a sign that something may be wrong but its presence does not obligatory mean that irregularity or fraud has occurred. It means that the competent persons/authorities must further evaluate the situation with attention to the detail.
The presence of red flags should make the competent authorities’ staff more vigilant and help them to identify similar modi operandi and to take measures.
A wide range common and recurrent fraud schemes and the relevant fraud indicators (red flags) may be found on the Information Note on Fraud Indicators for ERDF, ESF and CF, issued by the European Commission, such as in cases of corruption and kickbacks, undisclosed conflict of interests, collusive bidding, unbalanced bidding, rigged specifications, leaking of bid data, manipulation of bids, unjustified single source awards, split purchases, co-mingling contracts, cost mischarging, defective pricing, failure to meet contract expectations, false, inflated or duplicate invoices, phantom service providers, product substitution.
Example: Red flags for rigged specifications in public procurement are:
Source (All languages): Information Note on Fraud Indicators for ERDF, ESF and CF
See also: OLAF’s Compendium of anonymised cases
For ERDF, ESF, and the Cohesion Fund, Member States shall prevent, detect and correct irregularities and shall recover amounts unduly paid, together with any interest on late payments. They shall notify the Commission of irregularities that exceed EUR 10 000 in contribution from the Funds and shall keep it informed of significant progress in related administrative and legal proceedings. This obligation imposed by the European Legislator is known as reporting of irregularities.
The reporting of irregularities has a dual function: It is a preventive measure to support proactive risk analysis, and it lso allows administrative and judicial monitoring of action taken by Member States.
Irregularities may be detected by any competent national or EU (Commission services, OLAF, European Court of Auditor, other) authority. An irregularity may occur at any moment in the project cycle, from programming through to audit, ex-post monitoring or evaluation.
Article 3(1) of Commission Delegated Regulation (EU) Nos 2015/1970, 2015/1971, 2015/1972 and 2015/1973 requires Member States to report certain cases of irregularities and suspected fraud which have been the subject of a primary administrative or judicial finding (premier acte de constat administratif ou judiciaire).
Source: Article 3(1) Commission Delegated Regulation (EU) 2015/1970
Article 3 (1) Commission Delegated Regulation (EU) 2015/1971
Article 3 (1) Commission Delegated Regulation (EU) 2015/1972
Article 3 (1) Commission Delegated Regulation (EU) 2015/1973
Derogations from the obligation to report irregularities:
The Member States shall not notify the Commission of irregularities in relation to the following:
(a) cases where the irregularity consists solely of the failure to execute, in whole or in part, an operation included in the co-financed operational programme owing to the bankruptcy of the beneficiary;
(b) cases brought to the attention of the managing authority or certifying authority by the beneficiary voluntarily and before detection by either authority, whether before or after the payment of the public contribution;
(c) cases which are detected and corrected by the managing authority or certifying authority before inclusion of the expenditure concerned in a statement of expenditure submitted to the Commission.
In all other cases, in particular those preceding a bankruptcy or in cases of suspected fraud, the detected irregularities and the associated preventive and corrective measures shall be reported to the Commission.
When amounts unduly paid to a beneficiary cannot be recovered and this is as a result of fault or negligence on the part of a Member State, the Member State shall be responsible for reimbursing the amounts concerned to the budget of the Union. Member States may decide not to recover an amount unduly paid if the amount to be recovered from the beneficiary, not including interest, does not exceed EUR 250 in contribution from the Funds.
Source: Art. 122 of CPR Regulation 1303/2013