This report outlines a strategy for managing fraud and corruption risks related to the European Structural and Investment (ESI) Funds in the Slovak Republic. It suggests targeted and tailored actions for the authorities responsible for these funds, building on their existing fraud and corruption risk management practices. The strategy and key actions draw from the OECD Recommendation of the Council on Public Integrity, as well as European Commission guidance and international standards of inter alia the Committee of Sponsoring Organizations of the Treadway Commission (COSO), Institute of Internal Auditors (IIA) and International Organization for Standardization (ISO).
Tackling Fraud and Corruption Risks in the Slovak Republic
A Strategy with Key Actions for the European Structural and Investment Funds
OECD Public Governance Reviews
Abstract
Executive Summary
Fraud and corruption threaten to divert taxpayers’ money away from the key beneficiaries of public policies and investments: that is, our communities and citizens. When such risks materialise, citizens’ trust in government declines and the consequences of fraud and corruption become acutely apparent. The European Structural and Investment (ESI) Funds, consisting of five structural funds designed to promote harmonious development across EU Member States, are a vehicle with enormous potential for economic growth and social development in the European Union. The volume of investment for 2014-20 is EUR 450 billion, including over EUR 15 billion for the Slovak Republic alone. Yet, these investments carry risks, including the potential for fraud, corruption and abuse.
For ESI Funds investments to achieve their policy goals, create jobs and promote a sustainable European economy, it is critical that governments have robust risk management policies, skills, and tools in place. With those prerequisites in mind, the strategy presented here provides targeted guidance for Slovak programme authorities on how to strengthen their practices in fraud and corruption risk management. The strategy identifies two key areas for improvement: 1) enhancing fraud and corruption risk assessments, with a focus on data-driven approaches, and 2) adopting a systematic approach to the management of fraud and corruption risks within ESI Funds.
Enhancing risk assessments
During the current programming period, managing authorities (MAs) in the Slovak Republic have made progress in developing their risk management frameworks and procedures for implementing operational programmes. Nevertheless, opportunities remain to improve fraud and corruption risk assessments further. The participating MAs have not accurately identified all relevant inherent risks, so that certain fraud and corruption risks remain undetected and unmitigated. To ensure that their risk management practices provide a strong basis for identifying all relevant fraud and corruption risks to ESI Funds, MAs can review and update their risk assessment processes and risk catalogues to ensure greater clarity and comprehensiveness. They can also improve the accuracy of their risk profiles by undertaking more robust risk analysis and scoring.
The OECD Recommendation of the Council on Public Integrity promotes taking a strategic approach to integrity, internal control and risk management. In the Slovak Republic, MAs can adopt strategic foresight for fraud and corruption risk management in ESI Funds. Notably, programme authorities can make better use of risk assessments, both as input to decision-making processes and to ensure that resources are allocated to areas prone to fraud and corruption. Furthermore, MAs do not take full advantage of data-driven approaches or tools. Making better use of both the Arachne risk-scoring tool and national databases could strengthen assessment of these risks.
Adopting a systematic approach to fraud and corruption risk management
MAs in the Slovak Republic have developed and adapted their procedures regarding fraud risk assessments in line with European Commission requirements. However, programme authorities can take steps to improve fraud and corruption risk governance and move away from current “check-the-box” approaches. For instance, in some MAs, risk management procedures do not incorporate any explicit focus on fraud and corruption, which leads to ad hoc approaches for managing such risks. Fostering a proactive risk culture can help MAs strengthen risk governance and embed fraud and corruption risk management into existing practices. This means going beyond the dissemination of codes and rules and communicating risk management values and principles to employees. MAs can establish or revise explicit anti-fraud policies to demonstrate their commitment to integrity and to communicate how specifically managing fraud and corruption risks can help achieve the objectives of operational programmes.
Enhanced co-operation and knowledge sharing are vital to ensure that programme authorities are maximising their skills and expertise to mitigate fraud and corruption risks. In the Slovak Republic, MAs do not regularly communicate with other authorities responsible for ESI Funds management or oversight, such as the certifying authority, Anti-Fraud Co-ordination Service (AFCOS), the audit authority (Ministry of Finance), or Corruption Prevention Office. Furthermore, MAs do not systematically communicate with law enforcement authorities such as the General Prosecutor’s Office once cases of fraud or corruption have been referred to them. By establishing a task force within the AFCOS network and organising information-sharing forums, the government of the Slovak Republic can provide programme authorities with the means to improve their risk assessments and ensure that fraud and corruption risk management is embedded in authorities’ practices.
The OECD Recommendation of the Council on Public Integrity underlines the need to provide those in the public sector with sufficient training and guidance in applying integrity standards in the workplace. Indeed, people and skills are the foundation of effective fraud risk assessments. With guidance from the Central Co-ordination Body, the Central Contact Point for the European Anti-Fraud Office can work with MAs to establish formalised and regular training to increase capacity for detecting fraud and corruption risks. Practical guidance on real cases and programmes, including with “red flags” and appropriate remedial actions, can be integrated into these training activities.
In the Slovak Republic, participating MAs are at the fifth stage of their risk management programmes, meaning they are embarking on the monitoring and evaluation process in 2019. All operational programmes can improve this process by placing greater focus on evaluating existing fraud and corruption risk management practices. For example, to enable benchmarking between MAs and continuously improve risk management, the Risk Management Working Groups can design scorecards with appropriate measurement criteria.
The high volume, complexity and value of investments through ESI Funds offer an attractive target for fraud and corruption in the Slovak Republic and other EU Member States. National authorities can work together to better manage fraud and corruption risks and safeguard integrity in ESI Funds. In doing so, governments could ensure that citizens reap the benefits of these investments in diverse sectors, and thereby foster trust in both government and ESI-funded programmes.
