CSD:International Seminar: EU Financial Interests under Threat: New Approaches in Assessing the Risks from Public Procurement and EU Funds Fraud


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International Seminar: EU Financial Interests under Threat: New Approaches in Assessing the Risks from Public Procurement and EU Funds Fraud

On 31 October – 1 November 2013 the Center for the Study of Democracy, with support of The European Anti-Fraud Office (OLAF), organized an international seminar on “EU Financial Interests under Threat: New Approaches in Assessing the Risks from Public Procurement and EU Funds Fraud”. The event provided a discussion platform for representatives of national fraud and public procurement authorities, research institutions, international organizations and the private sector from Bulgaria, Greece, Italy, the Netherlands, Romania and the United Kingdom.

Dr. Ognian Shentov, Chairman of the Center for the Study of Democracy, opened the event and highlighted CSD’s efforts in the field of anti-corruption, in particular its long-established Corruption Monitoring System and cooperation with national and European authorities. CSD aims to continue working in this regard, by developing a specific indicator to assess public procurement fraud in Bulgaria. Mr. Nikolas Kanellopoulos, Secretary General of the Ministry of Justice, Transparency and Human Rights in Greece pointed out that the public procurement sector is fraught with opportunities for fraudulent activities. He also presented the recent changes that the Greek government has introduced to tackle such activities.

Mr. Ruslan Stefanov, Director of the Economic Program at the Center for the Study of Democracy, moderated the first session of the event, which focused on “Policy Perspectives and Implementation Instruments”. He pointed out that the misuse of public resources can have particularly negative outcomes in the context of the current economic climate. Dr. Ioannis Karkalis, Supreme Court Justice in the Vice-Commissioner of the State in Greece explained that the widening income gap and deterioration of democracy are among the main negative consequences of corruption and fraud in the public sector. He presented the Anti-Corruption Authority Standards developed by the European Partners Against Corruption as a suitable guideline for national authorities. Dr. Karkalis also discussed the three prevailing approaches aimed at tackling corruption in the public sector - interventionism (which focuses on criminalizing fraudulent activities), managerialism (which aims at creating rules to prevent corruption) and integrity (which relies on prevention through awareness raising in civil society).

Mr. Wim Wensink, Project manager at PricewaterhouseCoopers (PwC), presented the latest report commissioned by OLAF on fraud in public procurement. The study includes an innovative methodology which aims to measure the cost of corruption in the public sector. The study uses 27 “red flags” to identify irregular activities in public procurement tenders. According to PwC, the estimated cost of fraud in public procurement of the 8 EU Member States, studied in the report, is between EUR 1.47 bln. and EUR 2.25 bln.

The second session dealt with “EU funds: Assessing Corruption Risks and Impacts” and was opened by Mr. Domenico Perrotta, Senior Researcher at the Institute for Protection and Security of the Citizen, Joint Research Centre of the European Commission. He presented a statistical methodology used to monitor types of trade fraud by examining trade flow patterns, price outliers and systematic underpricing. This methodology is being used to detect stockpiling, evasion of import duties, deflection of trade, money laundering and VAT fraud, but could be applied to public procurement contracts too.

Dr. Gian Luigi Albano, procurement expert at Consip Italy, an agency of the Ministry of Economy and Finance, outlined the Consip`s role, which includes determining procurement strategies, awarding contracts and managing the project, once the contract is given. He pointed out that one of the main issues with the public procurement cycle in the EU is that the authorities, be it at national or European level, have very limited involvement in the process, once the contract has been signed. At the same time, this is the phase when most irregularities occur, due to imprecise and unclear contracting and therefore needs to be monitored very closely.

On behalf of Ms. Miglena Pavlova, Executive Director of the Public Procurement Agency in Bulgaria, Ms. Ana Mitkova presented the main features of the public procurement system in Bulgaria, as well as the most common malpractices in this sector, such as tailoring tenders to benefit predetermined contractors, including unrealistic demands and manipulating assessment procedures. She suggested that the new Public Procurement Law addresses some of these issues by making the process more transparent and simple, through the introduction of both ex-ante and ex-post reviews.

Dr. Philip Gounev, Senior Analyst, Security Program, Center for the Study of Democracy moderated the third session on “Industry Focus: assessing the extent of fraud in vulnerable industries”. Mr. Evgeny Smirnov, Senior Procurement Specialist from the Procurement Department of the European Bank for Reconstruction and Development (EBRD), introduced some new approaches for an assessment of prohibited practices risks, defined as coercive, collusive, corrupt and fraudulent. The main procurement principle and integral part of project risk management applied by the EBRD is to minimize risk and maximize success. Mr. Smirnov outlined some of the main irregular practices which are common in public tendering and highlighted the Multilateral Development Banks’ Mutual Enforcement of Debarment Decisions Approach, which acts as a deterrent against corrupt practices.

Ambassador Ilian Vassilev, Honorary Chairman of the Bulgarian Economic Forum, focused on the complex risks and challenges for energy and infrastructure projects in particular. Using the example of the Belene Nuclear Power Plant, he suggested that public procurement irregularities are possible when a certain technology or machinery is chosen, which limits the number of investors who can participate in the project due to their specific expertise. Mr. Ruslan Stefanov added that the energy and healthcare sectors present the biggest public procurement challenges not only in Bulgaria, but on EU level as well.

Mr. Sorin Ionita, President of the Romanian think tank Expert Forum (EFOR) gave an insight into recent research on political clientelism, primarily in Romania and Moldova. In order to measure corrupt activities objectively, the organization has developed a specific indicator, which analyzes the allocations of funds from the government to local authorities. The results showed widespread clientelism, linked to mayors’ political affiliation.

The fourth session of the event was dedicated to “Assessing procurement fraud: policies and practice”. Mr. Edward Nkune, Director of the National Fraud Authority (NFA) in the United Kingdom gave an overview of the UK institutional developments in response to combating fraud and presented the Annual Fraud Indicator, developed by the NFA. Given the lack of consistent data, it is difficult to observe trends and therefore the indicator’s original purpose was to raise awareness about the subject of fraud in public procurement. Furthermore, the NFA has used the indicator to produce a resilience map of the most vulnerable groups and sectors, as well as to identify and spread the best anti-fraud practices. Mr. Nkune identified the sharing of best practices and the use of more data analytics among the key principal elements in the process of applying effective fraud monitoring.

Mr. Silviu Popa, Senior Expert at the National Council for Solving Complaints in Romania presented a detailed overview of the work of his organization, in particular dealing with complaints related to public procurement tenders. Highlighted among the most common problems are the non-transparent assessment criteria, excessive requirements aimed at favoring a particular applicant and lack of clarification with regard to the contract-awarding decision. According to Mr. Popa, legislative clarity, adequate staff training and reduced bureaucratic procedures are among the most effective ways to overcome these shortcomings.

Mr. Georgi Zaikov and Mr. Borislav Hlebarov, representatives of the “Coordination of the fight against infringements affecting the financial interests of the EU" Directorate (AFCOS), which is part of the Ministry of the Interior in Bulgaria, described the organization`s institutional structure and activities. Apart from cooperating with the other AFCOS centers throughout the EU-28, the AFCOS directorate has the powers to perform checks on administrative irregularities in cooperation with national and regional authorities. The organization`s methodological step-by-step process for administrative investigations was demonstrated by a detailed case-study.

The final session of the event dealt with “Countering public procurement fraud: European perspectives”. Professor Ernesto Savona, Director of Transcrime, Italy, emphasized the importance of focusing not only on increasing transparency in the public sector, but also efficiency, by avoiding the use of too many regulations. Furthermore, Professor Savona highlighted the need to focus on risk assessment models, which take into consideration the complexity of fraudulent activities, including the location, economic sector and propensity to commit a crime by certain groups. With this information, the focus of anti-corruption and anti-fraud activities would shift towards prevention rather than criminalization.