1. shopping
2. auctions

M322 – Village renewal
1
80 % EAFRD
20 % beneficiary
Village
20
%
Consultant
"Foundation
Pretty Village"
Contract
Brothers
Bidder 1
subcontracts
€
€
Bidder 2
Bidder 3
Earthworks
20.000 € + 100 %
Buys toys
8.000 € + 30 %
Installs
15.000 € + 100 %
2
Once?
Twice?
10 times?
145 times
3
M312 – Creation of
Microenterprises
Multifix SRL – PL
Forge for iron
Paragon
OfferSRL
1
Paragon
Offer 1SRL
Offer 2
Offer 2
Offer 3
Offer 3
4
Multifix SL - ES
Forge for iron
One client
Multifix SRL – PL
Owner:
J. Dojewski
Forge for iron
Paragon SRL
Paragon SRL
Id
e
te ntic
xt a
s l
l
ca
i
t s
Offer
Fdaelnsxet2
I te
Offers2
e
Fal
Offer
se3
Fal
Spanish
product
5
Offer
se3
Fal
Other manipulations
Too far…
6
Artificial creation of funding conditions
Where?
Rural Development
Investment measures
M121 – Modernization of
agricultural
holdings
M312 – Support for the creation
and development of
micro-enterprises
M313 – Tourism activities
7
Why?
Funding limitations
M312 – Support for the creation
and development of
micro-enterprises
M121 – Modernization of
agricultural
holdings
Max. eligible costs: 2 million €
Max. funding: 40 %
Once in the Programme!
Max. funding: Up to 70 % of the
eligible costs; max. 200.000 €
Max. 200.000 € in 3 consecutive
fiscal years!
M313 – Tourism activities
Profit-making: 70 % of eligible
costs; 70.000 €/project
Max. 200.000 € in 3 consecutive
fiscal years!
e
at
t
S
8
Ai
d
e
"d
m
im
in
"
is
State Aid "de minimis"
Art. 2 Reg(EC) 1998/2006
Beneficiary receives
197.955 €
- M312 -
Beneficiary receives
84.000 €
- M313 -
≤ 200.000 €
≤ 200.000 €
9
State Aid "de minimis"
Art. 2 Reg(EC) 1998/2006
Beneficiary receives
198.944 €
- M312 -
Beneficiary asks for
84.000 €
- M313 -
282.944 €
10
Temptation to circumvent
funding limitations
Art. 60 of Reg. (EU) 1306/2013
"Without prejudice to specific provisions, no
advantage provided for under sectoral agricultural
legislation shall be granted in favour of a natural
or legal person in respect of whom it is established
that the conditions required for obtaining such
advantages were created artificially, contrary to
the objectives of that legislation."
Art. 4 (8) of Reg. (EC) 65/2011
11
Characteristics
How?
Creates
Controls
AgroOne
Husband
AgroTwo
Wife
Only client
Under market price
EAFRD M121:
900.000 €
EAFRD M312:
200.000 €
12
Creates
Controls
Master
Funding
limitation
AgroOne
AgroTwo
Only client
Under market price
13
Slave
Platform for
new funding
• Company split
- but continued as one!
Anton GmbH
Anton & Bill GmbH
• Same manager
• Single accounting
• Profit 50:50 to A & B
Bill GmbH
14
• Separate projects
- organically one!
Mother
Father
Daughter
15
End of chapter
16
Red Flags
for Irregularities and Fraud
in the areas of high risk
Red Flags
• Indicators for fraud/irregularities
• Not: Evidence
• = "Element that something is unusual"
18
?
19
Red Flags
•
•
•
•
Indicators for fraud/irregularities
Not: Evidence
= "Element that something is unusual"
Where Red Flag detected: Further verification
of the entire file
• Red Flags: Dynamic – from indication to suspicion
(the more Red Flags, the more suspicion)
20
Producer organisations
• PO purchases investment goods from one
of its members or from a supplier with
which one of its members is affiliated
• Attention! All/most members of the PO
belong to the same family
21
Fraud Hotspots
EAFRD
Investments
Manipulated
offers
Artificial creation
of conditions for funding
22
Red Flags for manipulated,
non-competitive offers
•
Formal indicators
•
Structural indicators
•
Pricing anomalies
•
Anomalies in the identity of the bidder
•
Other anomalies
23
Formal indicators
All offers or two out of three offers:
Identical contents
24
Identical contents
Tractor Deutz-Fahr
Series 5G – 5105.4
75/102 kW/CV
Air-conditioning
Pneumatic seat
Hydraulic 60ECO
Tractor Deutz-Fahr
Series 5G – 5105.4
75/102 kW/CV
Air-conditioning
Pneumatic seat
Hydraulic 60ECO
Price: 49.000 €
Tractor Deutz-Fahr
Series 5G – 5105.4
75/102 kW/CV
Air-conditioning
Pneumatic seat
Hydraulic 60ECO
Price: 49.900 €
Price: 49.500 €
25
Formal indicators
All offers or two out of three offers:
Identical contents
or
Identical errors
26
Identical errors
•Typographic errors
27
The quick brown fox jumps over the lazy dog.
The quick brown focs jumps over the lazy dog.
The quick brown focs jumps over the lazy dog.
28
All three offers or two out of three: identical errors
•Typographic errors
•Errors in name/address of beneficiary
•Wrong brand or model names
29
John Deere Tractor 6MC
John Dear Tractor 6MC
John Dear Tractor 6MC
30
All three offers or two out of three: identical errors
•Typographic errors
•Errors in name/address of beneficiary
•Wrong brand or model names
•Wrong country of origin
•Possible exception: Templates for construction
works
31
Item
1
2
3
4
5
6
Work Type
Foundation: DIN 7023 concrete slab
350 mm;
Steel armour 25 mm; density P4
Drainage system for roof with 7
collectors R56 lateral type
Power cabling 400 V 9A, diameter 28
mm, under plaster
Prefab. Wall construction
Doors fireproof Grade A3 with frame
and armature
Windows double glazing PVC white
125x90 cm
Always identical
32
Unit
Quantity
Unit
price
Total
m²
125
xx
xxx
m
82
xx
xxx
m
255
xx
xxx
341
xx
xxx
pce
16
xx
xxx
pce
14
xx
xxx
Formal indicators - Checks and controls
•Careful checks of offers
•Side-by-side comparison
•Sample checks of country of origin of equipment
•Sample checks of existence of model
33
Structural indicators
• Multitude of identical/highly similar projects
• Same consultant(s) in a large number of these
projects
• Same (sub)contractor(s) in a large number of
these projects
34
Pricing anomalies
• Offers show unusual price patterns
35
Bidder A
Item
Item
Item
Item
Item
Item
1
2
3
4
5
6
Bidder B
700,00
1.256,23
552,25
488,23
4.588,26
556,23
Always
lowest
725,50
1.355,77
560,64
578,36
4.642,87
572,99
Always
in between
36
Bidder C
815,00
1.389,84
570,00
612,41
4.684,99
579,56
Always
highest
Pricing anomalies
• Offers show unusual price patterns
• Price differences between offers are linear
37
Lot
Lot
Lot
Lot
Lot
Lot
Lot
Lot
Lot
Lot
1
2
3
4
5
6
7
8
9
10
Bidder A
12.542,26
17.278,41
22.958,55
9.261,30
117.289,35
7.412,36
89.577,00
13.244,20
31.557,33
45.789,22
+
+
+
+
+
+
+
+
+
+
2
2
2
2
2
2
2
2
2
2
%
%
%
%
%
%
%
%
%
%
366.909,98 + 2 %
38
Bidder B
12.793,11
17.623,98
23.417,72
9.446,53
119.635,14
7.560,61
91.368,54
13.509,08
32.188,48
46.705,00
%
%
%
%
%
%
%
%
%
%
Bidder C
13.043,95
17.969,55
23.876,89
9.631,75
121.980,92
7.708,85
93.160,08
13.773,97
32.819,62
47.620,79
374.248,20 + 4 %
381.586,40
+
+
+
+
+
+
+
+
+
+
4
4
4
4
4
4
4
4
4
4
Pricing anomalies
• Offers show unusual price patterns
• Price differences between offers are linear
• Price differences are identical amounts
39
Lot 1
Lot 2
Lot 3
Lot 4
Lot 5
Lot 6
Lot 7
Lot 8
Lot 9
Lot 10
Bidder A
12.542,26
17.278,41
22.958,55
9.261,30
117.289,35
7.412,36
89.577,00
13.244,20
31.557,33
45.789,22
Bidder B
12.793,11
22.623,98
23.417,72
11.946,53
119.635,14
10.060,61
93.088,54
13.509,08
32.188,48
39.366,79
Bidder C
17.793,11
25.123,98
23.417,72
14.446,53
119.635,14
11.780,61
85.750,33
13.509,08
32.188,48
46.705,00
366.909,98
378.629,98
390.349,98
+ 11.720
40
+ 11.720
Pricing anomalies
• Offers show unusual price patterns
• Price differences between offers are linear
• Price differences are identical amounts
• Price differences between offers and reference
prices are linear
41
Reference price
Bidder A
Bidder B
Bidder C
12,70
12,06
11,93
11,81
100%
95 %
94 %
93 %
42
Pricing anomalies
• Offers show unusual price patterns
• Price differences between offers are linear
• Price differences are identical amounts
• Price differences between offers and reference
prices are linear
• Price quotations for individual items differ by even
amounts in numerous cases
43
Bidder A
Item
Item
Item
Item
1
2
3
4
Bidder B
700
1.000
550
5.500
800
1.200
560
5.400
44
Bidder C
900 Δ 100
1.400 Δ 200
570 Δ 10
5.300 Δ 100
Pricing anomalies
Checks and controls
• Side-by-side comparison of totals and
individual prices
• Use Excel
• Numerical comparison of the prices (absolute
and relative differences, differences to
reference prices, etc.)
45
Anomalies in the identity of the bidder
• Fictitious/invented company
46
General appearance of offers: Simplicity!
•
Simplistic layout of stationery, no logo
•
Standard font/simplistic stamp
•
Name of contact person not mentioned
•
Email account generic (yahoo, gmail, etc.)
•
Only mobile telephone number given
•
Telephone number not in country of establishment
•
No physical address, only P.O. box
•
Inexistent post-code or mismatch post-code/city
47
48
Anomalies in the identity of the bidder
• Fictitious/invented company
• Company exists but does not trade in the area
required
49
qu
e
g
lin
o
co
l
a
tri
s
u
In d
50
nt ?
e
i pm
te
h
g
u
a
Sl
r
e
n
i
l
s
51
rc
o
f
c
hi
k
?
n
e
Anomalies in the identity of the bidder
• Fictitious/invented company
• Company exists but does not trade in the area
required
• Anomalies in relation to the place of establishment of
bidders
52
Too close…
53
Too far…
54
Anomalies in the identity of the bidder
• Checks and controls
• Internet-search for the company concerned
• Check for plausibility of telephone numbers
and address details
• Google street view!
• Check if other entities established at same
address
55
Fraud Hotspots
EAFRD
Investments
Manipulated
offers
Artificial creation
of conditions for funding
56
Categories of Red Flags
for the artificial creation
of funding conditions
Three groups:
External/physical indicators
Structural/legal indicators
Business/accounting indicators
NB! All indicators are about unusual
proximity between companies that pretend
to be independent!
57
External/physical indicators
•
2 or more beneficiaries at same address
•
Identical or door-to-door offices
•
Shared facilities (e.g. same tel/fax/production)
•
Common storage of machinery/equipment
•
Shared commodities (water/electricity/heating)
58
Structural/legal indicators1
•
One (or more) of interlinked companies has already
received EAFRD investment funding
•
Equipment purchased under project only makes
sense to complement equipment of another
•
Same person is manager of several interlinked
companies
•
Owners/managers of several companies are
spouses or family
•
Employees of one company are owners/ managers
of another company
59
Structural/legal indicators2
•
Same consultant for several EAFRD projects
•
Identical or highly similar feasibility studies or
business plans
•
Companies give each other guarantees for cofinancing
•
Same natural or legal persons shareholders of
linked companies
•
Owner/manager of one company has power of
attorney for bank account of another company
60
Business/accounting indicators
•
Beneficiary company works exclusively for
companies to whom it is linked (invoice trail)
•
Prices below market standards
•
No full evidence for cash-flow to pay invoices
•
Linked companies have identical or complementary
business purposes
•
Single company has been split into two and both
continue similar/complementary operations
61
Empirical experience
Where funding conditions have been created
artificially, usually one or more indicators from
each category show up simultaneously
Structural/legal
indicators
Business/accounting
indicators
External/physical
indicators
62
EAFRD
EAFRD M312:
M312:
180.000
180.000
Comp A
(06/2012)
Shareholder:
Mrs Smith
Second customer
O
Offf
fiicce
e
fiiccee
O
Offf
Comp D
Shareholders
Comp B & Comp C
Manager:
Mr Smith
First customer
e
icce
ffffi
OO
Owner:
Comp B
Shareholders
Mr & Mrs
Smith
Comp C
Shareholders
Mrs Smith's nephew &
Comp B
EAFRD M312:
200.000 €
in 03/2012
63
EAFRD M312:
200.000 €
in 02/2012
EAFRD M312:
180.000
Second customer
Comp A
(06/2012)
Shareholder:
Mrs Smith
Of
f ic
e
e
f f ic
O
Shareholders
Comp B & Comp C
Manager:
Mr Smith
First customer
Owner:
Comp B
O
e
ic
ff
Shareholders
Mr & Mrs Smith
Comp C
Shareholders
Mrs Smith's nephew &
Comp B
Comp D
EAFRD M312:
200.000 €
in 03/2012
64
EAFRD M312:
200.000 €
in 02/2012
Thank you for your interest!
[email protected]
65