The European Union’s anti-fraud watchdog, OLAF, has uncovered serious abuse of international aid with major donors being overcharged for projects and money being siphoned off into secret private bank accounts.
The 25-nation bloc is one of the world’s largest aid donors and in its annual report, published on Friday, OLAF said the EU’s humanitarian and development aid to third countries was a victim of “complex and well-organised” financial fraud.
“Such fraud takes an advantage of the lack of coordination in the monitoring and auditing activities between the various international donors,” the OLAF report said.
“The combination of multiple sources of financing and other factors has increased the complexity of accounting and reporting requirements and so made it easier to divert funds for personal or criminal benefit,” it added.
In one case investigated by OLAF, an Italian non-profit organisation that was not identified received 11 million euros ($14.34 million) from the European Union and almost 17 million from Italy to finance 28 projects in the third world.
The probe showed the organisation had sent fake or duplicate invoices and only part of the money had gone to projects.
“Of the problems we detect, more and more are in the aid sector, where things have to be looked into more closely,” OLAF director-general Franz-Hermann Bruener told reporters.
“All donors have systems of control, but we have to improve them. The more experience we get, we will be able to help donors understand better where the problems are,” he added.
Another case concerned a water project in Lesotho, where a local official responsible for awarding contracts had salted away bribes worth more than 3 million euros in Swiss banks.
International donors to the project included the World Bank and the EU, which provided 183 million euros in aid and loans.
In a third case, 90 percent of the EU money for a water supply project in Paraguay ended up in a bank account belonging to a foundation that had nothing to do with the project.
Declared sub-contrators did not exist and the director controlling the project also owned a company working on it.
But despite new challenges, an increase in new cases and continued abuse of EU funds, OLAF’s Bruener said the anti-fraud agency’s problems were managable.
“There is still a problem (of fraud) . . . but it is not something where we are so worried that everything is fraud or 50 percent of the budget is lost,” he said.
“The increase in cases is partially because there is an increase in people telling us . . . we see a problem here. It is a very promising sign,” Bruener added.
Marie-Louise Moller, Reuters, November 26, 2004