A new model of fraud prevention in small municipalities

The famous compliance, above all inherent to the prevention of crimes within business activity, is now a reality for the Public Administration due to the order of the Ministry of Finance and Public Function of 29 September, which includes the need and obligation to "define, plan, execute and control the projects and sub-projects into which the measures foreseen in the components of the Recovery, Transformation and Resilience Plan are broken down, which affects. Administrations at all levels, focusing here on the local level.  

The same order provides for the anti-fraud cycle, which is structured in four elements and which must be taken into account one by one in order to establish measures.

The four points are prevention, detection, correction and prosecution. The most important is prevention, as a good prevention model alleviates the needs of the other three elements. Education is the key, evidently from an early age in terms of the rejection of irregular and reprehensible behaviour, which is increasingly the consequence of mistrust in public services and public administration. The enormous amounts of money wasted on other purposes have proved to be a brake on the development and involution of Spain's major public services.

Obviously, education at an early age is currently viable and essential, but we must not forget to carry out re-education work at a later age, with special emphasis on public employees, as they are the driving force behind the work in these areas. Together with them, training experiences should also focus on the general public as they relate to the administrations. But the authorities must also demonstrate and practice a unanimous commitment to zero tolerance towards fraud and corruption.  In this field, the Anti-Fraud Agencies have a role of incalculable relevance, since, from the prevention and training of their offices, they transfer and promote awareness and training in public ethics.

The second axis, detection, is another key to avoid large-scale consequences and thus also prevent criminal prosecution. In particular, the establishment of whistleblowing channels to report not only specific actions, but also risks, and databases are two growing drivers for promoting the detection and reporting of cases or possible cases of corruption, as early detection of fraudulent behaviour that escapes prevention is a good strategy to follow. The aforementioned ministerial order specifically identifies fraud detection tools, including the following:

1. The use of databases such as the National Database on Subsidies (BNDS), data mining tools or risk scoring tools (ARACHNE).
2. The development of fraud indicators (red flags) and communication of these to staff in a position to detect them (useful for their definition, the OLAF documents mentioned below).
3. The establishment of adequate and clear mechanisms for the reporting of possible suspicions of fraud by those who have detected them.

Finally, and before prosecution by other means is initiated, the correctness of the procedure should be maintained and the circumstance of possible fraud and suspicions should be reported as soon as possible. The bodies and authorities involved must carry out actions and reviews of those processes where irregularities are suspected. As stipulated in the ministerial order, the following will be carried out:

1. Assess the incidence of fraud and its qualification as systemic or ad hoc.
2. Withdraw the projects or part of the projects affected by the fraud and financed or to be financed by the MRRF.

Finally, with regard to prosecution, it is necessary to complement what the ministerial order indicates with the rest of the regulations already in force, including the 1995 criminal law, in which fraud, corruption, forgery, etc. are included as offences, which will be analysed in summary below. Focusing the text on the order HFP/1030/2021, it argues for four possible actions, understanding that depending on the seriousness and appropriateness of each case, in the first place, the facts will be reported to the decision-making body, which will notify the responsible authority and will in turn notify the supervisory authority. In a second step, the complaint is made to the competent authorities, which, after an assessment, will inform the European Anti-Fraud Office. After that, a process of accountability and disciplinary proceedings will have to be initiated and, finally, a complaint will be made to the public prosecutor's office and the courts in appropriate cases, with a close link to the complaint to public authorities such as the National Anti-Fraud Coordination Service. 

The passage of time, globalisation and social progress make it necessary to act and take different measures to respond to the new situations that arise and break into the current model.

In Spain, due to its territorial formation, size and population, there are many small municipalities of less than 20,000 inhabitants, in which, despite the fact that administrative activity is significant, the control of procedures is lower than in other areas and has mainly been kept in the background, as the consequences of their actions are less obvious due to their lack of relevance or the small amounts involved. The rise of corruption accompanied by an intensification of its prosecution and punishment at a global level, as well as the need to enhance the value of rural areas, which also receive large amounts of funds from European and National Funds, has generated the need for action in rural areas.

One of the requirements, corresponding to what has been described here, has been the anti-fraud plans that the ministerial order entrusts to the secretary or whoever performs the analogous functions. This plan is seen as a starting point in the modernisation of actions and an a priori beneficial element for the world, which ends with punishment, but begins with education and prevention, resembling the well-known compliances of private companies. In order to see the real results and their development, it is necessary to take time, since prevention is a long-term option because it is largely based on education, while repressive means derive consequences as soon as they are applied.

Although the anti-fraud cycle is a step forward, it will require time and training, so that complementary mechanisms should be established so that the measures adopted start to be effective as soon as possible, bringing absolute control of economic and personal flows in the fight against corruption and fraud, which have incalculable social consequences at a global level. 

Alicia Rodríguez Sánchez, coordinator of the Economic Crime Area of Sec2Crime

References:

CAMPOS ACUÑA, M.C, Aplicación práctica del compliance en la contratación pública, Aranzadi; 2019.

Order HFP/1030/2021, of 29 September, which configures the management system of the Recovery, Transformation and Resilience Plan. Available at: https://www.boe.es/buscar/doc.php?id=BOE-A-2021-15860

PARAJÓ CALVO, M., "El establecimiento de sistemas preventivos, especial referencia a los planes antifraude, El Consultor de los Ayuntamientos, Wolters Kluwer, 2022.

In Annex III.C in Reference to measures for the prevention, detection and correction of fraud, corruption and conflicts of interest, in point 2, concerning fraud and corruption and in particular prevention, it states: Preventive measures shall be aimed at reducing the residual risk of fraud to an acceptable level and may include:

A. Development of an ethical culture, based on certain aspects such as: I. The promotion of values such as integrity, objectivity, accountability and honesty. II. The establishment of a code of conduct against fraud that may include aspects such as: conflict of interest, gifts, confidentiality, whistleblowing channels (whistleblowing mailbox and/or link to the SNCA whistleblowing channel), etc.
B. Training and awareness-raising. Training actions, which should be targeted at all hierarchical levels, would include meetings, seminars, working groups, etc. to promote knowledge acquisition and transfer. They focus on risk identification and assessment, establishment of specific controls, action in case of detection of fraud, case studies, etc.
C. Involvement of the organisation's authorities, which shall: I. I. State a firm and clearly communicated commitment against fraud, implying zero tolerance for fraud. II. Develop a proactive, structured, targeted and effective approach to fraud risk management decision-making. III. Develop an anti-fraud action plan that communicates within and outside the organisation its official position on fraud and corruption.
D. Clear and segregated allocation of roles and responsibilities for management, control and payment actions, with such separation clearly evidenced.
E. Adequate risk assessment mechanisms for all measures managed, leaving evidence of risk, looking for the parts of the process most susceptible to fraud, and especially controlling them, on the following basis:
I. Identification of measures that are more susceptible to fraud, such as those with high intensity, high budget, many requirements to be justified by the applicant, complex controls, etc. II. Identification of possible conflicts of interest. III. Results of previous internal audit work. IV. Results of audits by the European Commission or the European Court of Auditors, where appropriate. V. Previously detected cases of fraud. F. An effective internal control system, properly designed and managed, with controls that focus on effectively mitigating identified risks. G. Data analysis. Within the limits of data protection, cross-checking of data with other public or private bodies in the sector in order to detect possible high-risk situations even before funds are granted.

Documents that can provide guidance and assistance for the definition and implementation of these anti-fraud measures:

(a) Fraud risk assessment and effective and proportionate anti-fraud measures (DG REGIO) EGESIF_14-0021-00; 16/06/2014 (Guidance Note on fraud risk assessment for 2014-2020). Guidance developed in application of Article 125. 4(c) of Regulation (EU) 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund, and repealing Council Regulation (EC) 1083/2006. (b) Communication from the Commission (2021/C 121/01) - Guidance on how to avoid and manage conflict of interest situations under the Financial Regulation.
(c) OLAF Compendium of Anonymised Cases - Structural Actions. (d) OLAF practical guide on conflict of interest. (e) OLAF practical guide on forged documents. (f) Communication 1/2017 of 6 April 2017 of the National Anti-Fraud Coordination Service on how persons who become aware of facts which may constitute fraud or irregularity in connection with projects or operations financed in whole or in part with funds deriving from the European Union may proceed.

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