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.