Court of Auditors highlights errors in EU spending again

Each year the EU's Court of Auditors issues its opinion on the EU's spending and each year it is the same - "material errors" amounting to billions of euros probably misspent.

First of all, let's get the usual caveats out of the way - the auditors have signed off the accounts, which means that they are a reliable picture of EU revenue and spending. However, there remain significant errors in how the money was spent.

This is from the ECA press release:

The ECA’s estimate of the error rate is not a measure of fraud, inefficiency or waste. It is an estimate of the money that should not have been paid from the EU budget because it was not used in accordance with EU rules.

The other defence that the European Commission will make is that much of this spending is a shared responsibility between national governments and the EU institutions. But that does not excuse the fact that the errors keep rolling in year after year with little improvement and that much of this results from the complexity and Byzantine nature of EU spending programmes.

So how bad was it this year? 

Well here are some of the main findings for 2013:

•  93% of the EU Budget is affected by "material errors"
•  The error rate was 4.7%, amounting to c.€7bn euros "that should not have been paid out from EU budget"

Illustrative examples of waste highlighted by the EU's Auditors:

• Claims under the CAP for grassland that was actually forest.
• Claims for four Spanish border control helicopters that spent little time controlling borders.
• The salary of a private school director in Portugal charged to an EU project.
• €150 million of pre-accession exenditure validated by the Commission on the basis of estimates rather than for incurred, paid and accepted costs.

Is control of spending getting better?

Rate at which EU funding is misspent

One of the more depressing aspects of the EU budget is that the rate at which money is misspent remains consistently high. As we can see over time, it has gone down and then back up leading to the conclusion that the problem is persistent. This year it was 4.7%, which is lower than some previous years but still higher than others pointing to the fact there has been no "solution" to poor financial control.

Same old suspects?

Although there are a number of examples of misspending in Southern Europe, examples are also catalogued across the EU including in regional funding within richer states such as Germany. This begs the question as to why the EU is funding poorly controlled programmes in states that are net contributors and able to pay for their own, probably better quality programmes.

A solution - reform the budget?

Cutting regional funding in rich EU states would cut the EU error total, the EU budget and give states more autonomy all in one go as Open Europe has consistently argued.. Likewise Open Europe has also proposed radical CAP reform moving spending back to national governments. This would allow for more scrutiny of spending as well as well as remove some of the incentives to national governments to spend the money as fast as possible whatever the quality of projects.

Other Court of Auditor suggestions:

The Auditor's make a number of sensible recommendations and observations, including the following which are particularly interesting: 

• A better harmonisation of how GNI is calculated: The Court of Auditors has found that there are inconsistencies as to how different states calculate their "unofficial" economies. Given that the EU budget contributions are based on relative sizes of member states GNI and that recent statistical revisions have led to the UK receiving a large £1.7 surcharge any inconsistencies will no doubt be looked at very closely in HM Treasury.
 

• EU value added often difficult to discern: The EU's globalisation fund was picked out as an example of funding that has a low rate of EU "value added." That begs a question as to why it exists.

Verdict: Good report but, unfortunately, we will no doubt be returning to the subject of misspending when next year's report comes out... 

MEPs miss an opportunity to do their job

Last week, the European Parliament had the opportunity of doing what most other elected bodies in the free world consider a core task: making sure taxpayers' money is spent in a transparent, accountable and regular way.

MEPs were asked to provide discharge to the 2012 EU budget, in which according to the European Court of Auditors, the rate of error rate had increased to 4.8% compared with 3.9% in 2011 and affected every area of EU spending. The COA's own benchmark for acceptable levels of error is 2%. Of the total €138.6bn spent by the EU in 2012, €6.7bn was affected by errors.

However, MEPs voted to approve the discharge report, drafted by German CDU MEP Markus Pieper, with 488 votes in favour, 121 against and 10 abstentions - effectively signing off the budget.

The report admits that: 

"For the 19th time in succession, the Court of Auditors was unable to grant a positive statement of assurance regarding the legality and regularity of the payments underlying the accounts". 

(Yes, we know the Court of Auditors signed off the Commission's own accounts, so no need for any Commission officials reading this to make that well-worn point). The MEPs provided various justifications for nodding through the budget despite the errors, including:

"a distinction must be drawn between errors and fraud, and [the EP] considers that, in the vast majority of cases, errors stem from administrative mistakes, many of which are linked to the complexity of Union and national rules, which can be corrected".

They have a point. Errors and fraud are not the same thing - though the line can be awfully blurred. However, we doubt the average taxpayer would be entirely content with that explanation. The bottom line is that the cash should not have been paid out. As we've argued before, the high level of error is primarily due to the nature of the EU budget itself - it's size, complexity, confused objectives etc - and this will persist until it's fundamentally reformed.

What's interesting about the MEPs' behaviour is that they are a lot less forgiving when it comes to the spending by European Council/Council of Ministers - i.e. the member states.The EP decided to postpone the approval of the Council's accounts "because of its lack of cooperation".

EU Anti-Fraud Commissioner Algirdas Šemeta reacted to the EP's decision by saying that "The EU budget is the one of the most transparent and accounted for public budgets in the world", while arguing that "For the past 5 years, the overall error rate has been consistently below 5%. In other words, over 95% of all EU spending is in line with the rules."

The Netherlands, Sweden and the UK- three of the biggest net contributors to the EU budget collectively responsible for 20% of the funding - take a radically different approach. They again voted against discharge in the Council of Ministers, regretting that

"the overall error rate in recent years has increased to 4.8 %, being significantly above the acceptable threshold of 2 %."

Surprisingly, Labour and Lib Dem MEP, but also Dutch VVD MEP Hans Van Baalen voted against the position taken by their member states in the Council.

Not inspiring confidence.

Is the European Parliament reformable?

The European Parliament seems to stumble from one scandal to another. Be it the misuse of allowances, for example by claiming for daily subsistence to work in Brussels only to jet off for the weekend, their second pension schemes, or their junkets to island paradises, MEPs too often make the headlines for the wrong reasons.

But the Sunday Times' investigation published yesterday, now dubbed the 'cash-for-laws' scandal, leaves three MEPs standing accused of outright corruption. The article is behind the paywall, and well worth reading in full if you get the chance, but here are the key details:

- Three MEPs, Adrian Severin, the 56-year-old former Romanian deputy prime minister, Zoran Thaler, the former Slovenian foreign minister, and Ernst Strasser, a former interior minister in Austria, were all caught agreeing to propose amendments to EU laws believing they would be paid for this work with a €100,000 (£87,300) annual salary, a consultancy fee or both.

- The meetings with undercover journalists were secretly filmed and took place in bars, restaurants and the parliament’s two buildings in Brussels and Strasbourg. Severin later emailed the reporters saying: “Just to let you know that the amendment desired by you has been tabled in due time." Then sent an invoice for €12,000 for “consulting services concerning the codification of the Directive 94/19/EC, Directive 2009/14/EC and the amendments thereto”.

- The amendments were intended to dilute directives supposed to protect customers’ deposits after scandals such as the collapse of the Icelandic banks.

The sting has already claimed the heads of two of the MEPs, with Austrian MEP Strasser resigning immediately but claiming this was to avoid "damage" to his Austrian People's Party rather than because he'd done anything wrong.

Severin and Thaler, said that they knew it was a set-up and merely wanted to see where the exchange of emails would lead and initially refused to resign but, according to the latest reports, Thaler has now also done so. Severin has quit his job as deputy chairman of the Romanian Social Democracy Party, but so far held onto his seat at the European Parliament. The Group of European Socialists in the EP has however ordered him to Brussels to explain himself.

As the Sunday Times argued in its leader, this comes at a time when:

"The European parliament and its 736 members matter more now than at any time in its 53-year history. We live in an era when much of British law and a high proportion of the regulations that control our lives are determined in Europe. MEPs have the power to amend those laws and directives in a way that affects everybody."

The EP is launching its own investigation but, if they're found guilty and perhaps even if not, this particular story is shocking enough to engrain the 'gravy train' image of MEPs in the public's mind's eye for good. Various attempts to 'reform' the EP (back in 2009 there were some harmonisation of rules on pay and a ban on hiring family members as staff) have clearly done nothing to stop the rot.

One can't help thinking that the real root of the corruption and general money-grabbing behaviour of many MEPs is the fact that the EP still thinks that it can behave like a banana republic assembly without anyone noticing.

Perhaps MEPs should forgive people for taking the view that the EP, at the end, is not a 'real' Parliament. This was the conclusion of the German Constitutional Court, which said in its ruling on the Lisbon Treaty that:

"Measured against requirements placed on democracy in states, its election does not take due account of equality, and it is not competent to take authoritative decisions on political direction in the context of the supranational balancing of interests between the states. It therefore cannot support a parliamentary government and organise itself with regard to party politics in the system of government and opposition in such a way that a decision on political direction taken by the European electorate could have a politically decisive effect. Due to this structural democratic deficit, which cannot be resolved in an association of sovereign national states (Staatenverbund), further steps of integration that go beyond the status quo may undermine neither the States’ political power of action nor the principle of conferral."

Unfortunately, with the implementation of the Lisbon Treaty in particular, the EP now has extensive powers over laws that impact on people's everyday lives.

Scandals such as these will prompt more people to suggest that it's time to move on from the argument about getting rid of just one of the EP's extra seats in Strasbourg and consider scrapping the entire thing...

Down you go...

And so ex-UKIP MEP Tom Wise has been jailed for fraudulently claiming £39,000 in allowances from the European Parliament. He used his monthly staff allowance to pay for "fine wines" and other personal expenditure.

His researcher, Lindsay Jenkins, was cleared of all charges after Wise admitted that documents he had her sign were blank at the time.

Just a thought - but does anyone out there know if any movement has been made to reclaim the £538,290 in "unduly paid" expenses that Den Dover owed the European Parliament when he was awarded a medal from the very same institution for his "vital contribution" as his term came to an end in the summer?

(This is the kind of thing that caused Chris Davies MEP to go beserk at the Lib Dem conference - see here if you haven't already)

'ello, 'ello, 'ello

The European Police College, designed to train EU member states' police officers, has had its fair share of controversy in recent years. In February, MEPs on the European Parliament's Budgetary Committee refused to sign off its accounts amid a scandal over the "private use of public funds". Apparently, almost £21,000 in EU funds was wrongly paid out for staff use of cars, transport services, mobile phones and furniture.

So who better to put in charge of such an institution than a man under suspicion for corruption himself. We wish we were joking but today's Belgian daily De Morgen reports that the Belgian police officer who will preside over the executive board of the European Policy Academy (CEPOL) during the Belgian EU Presidency in 2010 is currently a corruption suspect.

You couldn't make this stuff up.

Down the plug hole

Last week the European Commission published its annual "Fight Against Fraud" report 2008 (and annexes - see here and here).

It tells us about the "financial irregularities" in the €130bn yearly budget - in other words, the amount of taxpayers' money that has gone AWOL through either suspected fraud or loss.

It is basically accepted that a chunk of money (amounting to hundreds of millions) will go missing every year as a result of the hundreds of different people involved in executing the big EU projects such as the controversial Structural and Cohesion Funds, Agriculture Funds, and the so-called 'Pre-Accession' Funds, which go towards helping aspiring EU member states jump through EU hoops.

As usual with these types of documents, the report is long-winded and generally made to read as confusingly as possible. It's not designed to be read - especially not by journalists - as the Commission naturally doesn't want to draw too much attention to the hundreds of millions of euros lost every single year as a result of its byzantine policies.

However, it is possible to pull out some interesting snippets. In summary:

• The overall number of irregularities for expenditure has increased from 6, 047 in 2007 to 6, 595 in 2008, although the estimated financial impact of irregularites decreased from €1 024 million in 2007 to €783.2 million in 2008.
  
  
• Not all irregularities have to be reported. In Agriculture, for instance, Member States must inform the Commission of all irregularities involving an amount of over €10 000. This threshold was introduced on 1 January 2007, having been increased from €4,000. The number of reported irregularities in 2008 was a third of the number of those before 2007 - but clearly comparisons with previous years are useless.
  
  
• The report acknoweldges that "a rather large amount of subsidies is below €10,000", meaning that many, if not most irregularities have, since 1 January 2007, been going unnoticed. Raising the bar for what constitutes an 'irregularity' seems like a clever way to ignore the problem, rather than decrease the amoun of money actually going missing.
  
  
• In monetary terms, Italy reported the highest amounts affected by irregularities in the agriculture category - more than EUR 54 million, followed by Spain which reported a total amount of approximately EUR 15 million. Italy reported 1 case for the sector "fruits and vegetables" in which the total amount affected was approximately EUR 25 million.
• Italy was responsible for more than 50% of reported budget irregularities regarding agriculture.
  
  
• In terms of recovering incorrectly paid monies, in agriculture alone, €125 million was recovered during 2008 by the Member States from beneficiaries. € 32 million was declared “irrecoverable” during 2008.
  
  
• A whopping € 1.254 billion in agriculture funds remained outstanding at the end of 2008 "at the level of the beneficiaries”
  
  
• In terms of the regional funds, which are intended to help Europe's poorer regions catch up with the richer ones, the total amount affected by irregularities in 2008 was about EUR 585.2 million, EUR 528.9 million of which was from the Structural Funds and EUR 56.3 million from the Cohesion Fund.
  
  
• Apart from a decrease this year, the cost of the reported irregularities is going up, with Spain, the UK and Italy reporting the most irregularities
  

The Commission likes to pin most of the blame on the member states for the loss of money. But there's no hiding from the fact that the Commission is the chief project manager of these enormous and unweildy policies. If the money wasn't first being filtered through the EU bureaucracy, before being distributed by member state governments, wouldn't there be a far smaller margin for error? As Derk Jan Eppink, a former senior Commission official (now a Belgian MEP) told an Open Europe audience a few years ago:

"The Commission is a good lawmaker but a bad projects-manager."

Tillack clashes with his accusers

During our debate in Brussels on Tuesday, Stern journalist Hans-Martin Tillack made some very interesting comments worth flagging up here.

Mr Tillack was arrested a few years ago at the instigation of the EU authorities after investigating EU fraud, but was later cleared. At our meeting he described how the staff in the Commission's DG Communication were behind the rumours which first lead to his arrest. Joe Hennon, the DG Communication Commissioner’s spokesman who was also present at our debate, objected saying: “It wasn’t the Commission. It was the Belgian police”. This was followed by laughter from the audience. Mr Hennon asked: “how many journalists have had the police knocking on their doors?”

Mr Tillack also lamented the re-appointment of Franz-Hermann Bruener as head of OLAF - the EU anti-fraud office which was criticised by the EU ombudsman for its handling of the Tillack case – by EU Communications Commissioner Margot Wallström, amongst others.

Commenting on Open Europe’s book, Mr Tillack said: “the PR of the Commission is not only biased, it is also simply wrong. One example is how often the Commission tries to diminish its importance and compares its number of employees to the typical medium-sized city council in Europe, while this is beside the point. The Commission has no nurses, no police. Actually you have to compare the Commission to, for example, the German federal government… the Commission has more employees than the German federal government.”

He continued: “it is highly questionable and unacceptable that the Commission is paying media outlets for reports. A friend of mine is an independent TV journalist who wanted to make a report on fraud in Brussels, but a German TV station did not want to go on with it, as they said they didn’t want to loose the funding they’re receiving from the Commission.”

He went to say that: “in the European Parliament, only eurosceptic groups question the Commission, and not the big traditional groups, so the whole EU system is a lot more vulnerable to corruption and waste as a lot goes unreported.”

The topsy-turvy world of the EU

At a seminar we held on Monday on EU trade policy one of the experts - Chris Stevens - said that dealing with the EU reminded him of the topsy-turvy world of Gilbert and Sullivan.

Two stories in today's papers illustrate his point nicely:

• Angela Merkel has claimed that unless the EU presses ahead with bringing back the EU Constitution the gap between EU politicians and ordinary people will widen.
• The EU is rocked by yet another fraud scandal. EU officials argue that this shows there is a need for even more integration. They want an EU Public Prosecutor to be appointed.

PS - for a much more eloquent description of the surreal world of the EU (such as official's arguments over "non non-papers") check out this recent FT article by Gideon Rachman .

EU fraud worth £2m a day

Today's Mail has picked up on a report by the EU's anti-fraud office OLAF which calculates that the EU loses £2 million pounds of its funds a day to fraud. It put the cost of all EU fraud between 1999 and 2005 at £4.4 billion.

The EU's response to this shocking news? EU Anti-Fraud Commissioner Siim Kallas (who was himself accused of siphoning off 3.5 billion roubles when he was Governor of the Central Bank of Estonia) adopted the classic approach of half admitting that there used to be a problem and then going on to emphasise that everything is much better now. "New anti-fraud procedures have been introduced" etc.

Kallas' arguments might have been convincing if it wasn't for the fact that the auditors refused to sign off the EU's accounts for a 12th year running in November.

The auditors found, for example, that half of all cattle declared by farmers in Slovenia (in order to qualify for grants) did not exist, while a quarter of sheep and goats had similarly "disappeared". In Spain, Greece and Italy, payments worth over 2bn euros for olive oil producers were either inflated or wrong. Worse still, in Greece the statistics that are used to determine who gets what from the CAP are controlled by the Greek Farmers’ Union.

Things certainly aren't all rosy in the garden yet...