Control, audit and investigation of fraud with European Structural and Investment Funds – Dichotomy between fraud prevention and swift execution of European funds

Nuno Almeida (Master’s in EU Law at the University of Minho)

The European Structural and Investment Funds (ESIF) made available by the European Union will be the highest ever, a fact that will raise new challenges regarding their control and effectiveness. [i] The European Court of Auditors has already expressed its concern about the inefficiency shown by the management authorities of operational programs in the control of the application of European funds, a fact duly expressed in its Report No. 6/2019, prepared on the basis of the audit of the activity of the managing authorities of Member States at the different procedural stages. Thus, in terms of fraud prevention, detection and combat, there was a small number of identified cases in the 2007-2013 programming period, with fraud detection rates between 0% and 2.1%[ii]. According to the European Court of Auditors, this figure is not representative of the level of fraud identified, as several cases of fraud were detected but not communicated to the competent authorities. As a result, it will be necessary to assess the current capacity of national institutions with control and auditing functions, especially regarding their real effectiveness in detecting irregular or illicit situations, since, as it should be recalled, approximately 80% of European funds are executed by Member States. Furthermore, given the exceptional need for swift execution of European funds, it is important to consider whether the pressure that will be placed on the authorities involved in this plan will inevitably lead to a concentration of all means in the execution area. In fact, it is expected that there will be predetermined levels or objectives for the execution of operational programs, a fundamental factor for the evaluation of the activity of these entities, which may weaken the identification of irregular or illicit situations, that is, a prevalence of execution in relation to prevention, a dichotomy that will require measures from the responsible entities if proven true.

On the national level, on May 21, 2021, Law No. 30/2021 approved special public procurement measures for projects financed or co-financed by European funds, a legislative change arisen from a need for speed in execution and application of European funds made available by the European Union, by simplifying public procurement procedures, as well as from the need to reinforce the fundamental principle of transparency, achieved through the implementation of mandatory electronic disclosure procedures and the reinforcement of the Court of Auditors’ intervention in the oversight of procedures.

The simplification of public procurement procedures, by increasing the number of simplified prior consultations with five entities, or simplified direct awards may, in some situations, limit the fundamental principles of competition, transparency and non-discrimination, through repeated invitation to the same entities or entities with special relationships among themselves, without rotation criteria or opening to a whole competitive market, considerably increasing the risk of occurrence of conflicts of interest, fraud and corruption in the application of European funds. Consequently, there is an urgent need to limit the discretionary power granted by the recurrent use of invitations, which can create situations with criminal relevance. In fact, considering that “around 90% of pre-contractual procedures in Portugal continue to be procedures by invitation (…)”,  there is still a need to define criteria for justifying the choices made, in order to prevent the existence of “artificial multiplication of proposals which are ‘façade’ or by the corporate ‘unfolding’ of the (single) company you wanted to invite (…)”[iii], i.e., companies that, despite not showing evidence of special relationships, may be in collusion with the invited competing companies and the contracting authority, a risk that is enhanced by the application of the invitation rule to the detriment of the tender rule.

It should also be noted that, in accordance with recital 41 of Directive 2014/24, the Member State, aware of its reality, may implement stricter measures to combat fraud with European funds, in compliance with the principles of equality, transparency and proportionality, according to the jurisprudence of the Court of Justice of the European Union [iv]. For example, in the absence of legislation on the application of public procurement rules to non-contracting entities benefiting from European funds, on 05.4.2019 the European Commission[v] declared that the managing authorities had the possibility to define national rules, by subjecting non-contracting entities to the rules of Part II of the Public Procurement Law to beneficiaries of European funds, in accordance with the jurisprudence produced by the Court of Justice of the European Union[vi], the Commission interpretative communication on EU law applicable to contract awards not or only partially covered by the community directives on public contracts[vii] and in accordance with the principles of the rules of transparency, competition and non-discrimination, the fundamental basis for the application of European funds.

Finally, Law No. 30/2021 brought new powers to the Court of Auditors in matters of preventive action regarding the correct application of European funds, by carrying out prior, concomitant or successive inspections, a measure that is expected to bring relevant results in the prevention of economic and financial crime. However, the Court of Auditors is preset for a subsequent inspection of the facts to the detriment of proactive actions, a manifest fact of its organizational structure, composed by a “prior control department and a concomitant control department for nine audit departments (…), which suggests that the prior structure curtails the audit and the realization of responsibilities”[viii].

In fact, in recent years, there have been some identified cases of fraud with European funds, which totaled approximately EUR 2.3 billion, according to data from the Criminal Investigation Department (Polícia Judiciária)[ix]. However, there is a recognized deficit in terms of human and technical resources allocated to criminal investigation, namely in the Portuguese Criminal Police[x] and Public Prosecutor’s Office, a fact also recognized by the Central Department of Investigation and Criminal Action [xi] and by the Attorney-General[xii]. On the other hand, a need for investment in instruments that can help in criminal investigation is recognized. The facts previously mentioned suggest the need to improve the entities with specific competence for the criminal investigation of economic and financial crime, a fact that corroborates the words of the European Commissioner for Justice, Didier Reynders, “the legal framework exists, but (…) [there is] a lack of resources and expertise of the police authorities”[xiii].

In short, the identification of weaknesses in the entities with responsibilities in the fight against fraud and the current requirements of swift execution of European funds are likely to generate a greater number of fraudulent situations. In view of the facts listed, there is a need to create transparency mechanisms, through the publicity of all public procurement procedures, with special focus on the reasoning behind the decision to choose the contracted entity. In addition to this fact, greater investment is needed in the preventive component, with a strong investment in ​​proactive fraud detection, such as the digital transformation in the control of European funds so as to improve the effectiveness and efficiency in the exercise of external control, especially in its inspection and auditing functions, following the current technological progress[xiv]. In fact, “the digitization of the subsidy attribution process, the use of intelligent algorithms and the cross-referencing of data, particularly with accounting records, are an important tool that allows, on the one hand, to prevent many situations before the fraud is committed and, on the other hand, to identify criminals after the act”[xv]. Finally, on the level of criminal investigation, greater investment in the technical and human resources as well as investigative tools should be made available.

The Member States define measures for combating fraud against the European Union’s financial interests in accordance with the subsidiarity principle. This does not preclude the implementation of “minimum functions to be ensured by the anti-fraud coordination services”, in view of the identification of several gaps in anti-fraud strategies in the Member States[xvi]. In fact, similarly to the use of criminal law in the defense of the financial interests of the European Union, as well as the emerging harmonization of the European criminal procedure, there is a need to consider additional and common measures for combating fraud and defending the proper implementation of the European Structural and Investment Funds.


[i] This work was based on the thesis “The effectiveness of combating fraud and corruption in the context of the European Union’s financial interests” published within the scope of the Master´s Degree in European Union Law at the University of Minho, available at https://repositorium.sdum.uminho.pt.

[ii] European Court of Auditors, Special Report No. 6/2019, “Tackling fraud in EU cohesion spending: managing authorities need to strengthen detection, response and coordination”, 20 May 2019, p. 4, available at https://www.eca.europa.eu/Lists/ECADocuments/SR19_06/SR_FRAUD_COHESION_EN.pdf.

[iii] See Marco Caldeira, “Consultas prévias e (combate à) corrupção na contratação pública”, Observador [“Prior consultations and (combating) corruption in public procurement”, Portuguese daily online newspaper Observador], available at https://contratospublicos.net/2020/09/20/consultas-previas-e-combate-a-corrupcao-na-contratacao-publica/ [5.9.2021].

[iv]  In this sense, Judgment of the Court of Justice of the European Union, 22 October 2015, in case C-425/14, Impresa Edilux and SICEF, no. 26.

[v] European Commission, Annex Commission Decision, (C(2019) 3452 final), dated 14.5.2019, “laying down the guidelines for determining financial corrections to be made to expenditure financed by the Union for non-compliance with the applicable rules on public procurement”, p. 4, available at https://ec.europa.eu/regional_policy/sources/docgener/informat/2014/GL_corrections_pp_irregularities_EN.pdf

[vi] In this regard, Judgment of the Court of Justice of the European Union, 7 December 2000, in Case c-324/98, Telaustria Verlags GmbH and Telefonadress GmbH v. Telekom Austria AG, no. 61 to 63.

[vii] European Commission, Commission Interpretative Communication (2006/C 179/02) on EU law applicable to contract awards not or only partially covered by EU Public Procurement Directives, 1 August, available at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52006XC0801%2801%29.

[viii] See Carlos Alberto Casimiro Nunes, “O combate preventivo à corrupção e ao branqueamento das vantagens ilicitamente obtidas”, in Paulo Pinto Albuquerque, Rui Cardoso, Sónia Moura (Org.), Corrupção em Portugal, Avaliação Legislativa e Proposta de Reforma, Universidade Católica Editora, Lisboa, 2021 [“The preventive fight against corruption and the laundering of illegally obtained advantages”, in Paulo Pinto Albuquerque, Rui Cardoso, Sónia Moura (Org.), Corruption in Portugal, Legislative Evaluation and Reform Proposal, Universidade Católica Editora, Lisbon, 2021], p. 157.

[ix] See Jornal Expresso [Portuguese weekly newspaper], available at https://expresso.pt/sociedade/2020-07-12-PJ-contabiliza-23-mil-milhoes-de-euros-em-fraudes-associadas-a-subsidios-europeus [1.9.2021].

[x] In this sense, Carlos Alberto Casimiro Nunes, “O combate preventivo à corrupção e ao branqueamento das vantagens ilicitamente obtidas”, in Paulo Pinto Albuquerque, Rui Cardoso, Sónia Moura (Org.), Corrupção em Portugal, Avaliação Legislativa e Proposta de Reforma, Universidade Católica Editora, Lisboa, 2021 [“The preventive fight against corruption and the laundering of illegally obtained advantages”, in Paulo Pinto Albuquerque, Rui Cardoso, Sónia Moura (Org.), Corruption in Portugal, Legislative Assessment and Reform Proposal, Catholic University Editora, Lisboa, 2021], p. 158, and José António Henriques dos Santos Cabral, “Combate à corrupção – Da Estratégia presente à reforma futura”, in Paulo Pinto Albuquerque, Rui Cardoso, Sónia Moura (Org.), Corrupção em Portugal, Avaliação Legislativa e Proposta de Reforma, Universidade Católica Editora, Lisboa, 2021 [“Fighting Corruption – From Present Strategy to Future Reform”, in Paulo Pinto Albuquerque, Rui Cardoso, Sónia Moura (Org.), Corruption in Portugal, Legislative Assessment and Reform Proposal, Universidade Católica Editora, Lisbon, 2021], p. 52.

[xi] Communication of the Central Department of Investigation and Criminal Action, available at https://dciap.ministeriopublico.pt/pagina/processo-caixa-geral-de-depositos-diligencias [1.9.2021].

[xii] Public Ministry, Attorney General’s Office, Opening of the Judicial Year 2020, available at https://www.ministeriopublico.pt/sites/default/files/anexos/intervencoes/discurso_ano_judicial_2020.pdf [20.7.2021].

[xiii] See Jornal Económico [Portuguese newspaper with a focus on economics and finance], of 2/2/2021, available at https://jornaleconomico.sapo.pt/noticias/comissao-europeia-insta-portugal-a-fazer-mais-no-combate-a-corrupcao-696182 [4.9.2021].

[xiv] Regarding this matter, Mário Tavares da Silva, “A transformação digital e o controlo externo dos dinheiros públicos – A sua importância na prevenção da fraude na utilização dos Fundos Europeus”, in António João Maia (Coord.), Riscos de Fraude e Corrupção no Programa de Financiamento Europeu: Reflexões e Alertas, Coimbra, Almedina, 2021 [“Digital transformation and external control of public funds – Its importance in preventing fraud in the use of European Funds”, in António João Maia (Coord.), Risks of Fraud and Corruption in the European Funding Program: Reflections and Alerts, Coimbra, Almedina, 2021], pp. 63-118.

[xv] SeeJorge Fonseca de Almeida, “Subsídios para uma estratégia nacional contra a corrupção”, in António João Maia (Coord.), Riscos de Fraude e Corrupção no Programa de Financiamento Europeu: Reflexões e Alertas, Coimbra, Almedina, 2021 [“Subsidies for a national strategy against corruption”, in António João Maia (Coord.), Fraud and Corruption Risks in the European Funding Programme: Reflections and Alerts, Coimbra, Almedina, 2021], pp. 201-225.

[xvi] Report No 6/2019 of the European Court of Auditors, pp. 5-6.

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