The European Union’s auditors have estimated that one in 20 payments made from the EU’s 2013 budget was affected by error. The auditors put the overall error rate for payments at 4.7%, marginally down on the 2012 budget when its estimate was 4.8%.
This is the auditors’ estimate of the money from the EU’s €148.5bn of spending in 2013 that should not have been paid out because it was not used in accordance with the EU rules.
The policy areas most affected by errors were regional policy, energy and transport, taken together, with an estimated error rate of 6.9%, and rural development, environment, fisheries and health, with an estimated error rate of 6.7%.
The most common cause of error was ineligible costs included in cost claims (39%), with ineligible projects or beneficiaries (22%) the second most common cause, followed by serious errors in public procurement (21%).
The European Court of Auditors (ECA) is required by EU law to give its opinion on the EU’s accounts and on the legality and regularity of the transactions underlying those accounts. The auditors found that the accounts for 2013 are reliable and present fairly the financial position of the EU. They found that the revenue underlying the accounts was free from material error, as were the commitments – the promises to pay in the future.
However, the payments taken as a whole were materially affected by error. Material error is deemed to be an error rate above 2%. For one area of spending – the roughly €10bn of administrative and related matters – the error rate was below 2%, but in all others it was above 2%.
As in previous years, the areas of spending most affected by error are those where management of the funds is shared with the member states rather than directly managed by the European Commission. The error rates are estimates that the auditors consider “most likely” and to which they attach a 95% degree of certainty within margins of error. So, while their estimate for the overall error rate is 4.7%, they are 95% confident that it falls within a range of 3.5%-5.9%. For regional policy, transport and energy, the range is 3.7%-10.1%.
Vítor Caldeira, the president of the ECA, said the auditors’ main message was that for the new spending period, 2014-20, with new financial rules, the focus should be on achieving good results with the money spent. In the 2007-13 period, too much priority had been given to making sure that the money was spent – “use it or lose it” – rather than paying attention to how it was spent.
“The lack of focus on performance is a fundamental flaw in the design of much of the EU budget,” the ECA said.
Other features of the report:
Caldeira flagged up the auditors’ concern that despite an increase in payments made, the commitments – ie, promises of future payments – and liabilities – obligations to pay – continued to grow and stood at the end of the year at €322bn.
The auditors warn that the EU is already bumping up against the ceilings on annual payments, so there is a risk that the EU will not be able to meet its obligations to pay.
The ECA urges the Commission to prepare a long-range forecast of cash flow. The auditors warn of a growing problem with “financial engineering instruments (FEIs)”, which provide assistance to businesses or urban projects by way of equity investments, loans or guarantees. They are supposed to be used to help small businesses, urban development or promote energy efficiency.
By the end of 2012, there were 940 FEIs, spread across 25 states (before the admission of Croatia, all but Ireland and Luxembourg). Caldeira said that by the end of 2013, the disbursement rate was too low – only 47% of what should have been paid out had been.
The auditors expressed concern that the directors-general – the heads of Commission departments – are underestimating the risks to the EU budget and the error rates affecting their spending.
For a large proportion of the transactions affected by error in the shared management areas, authorities in the member states had sufficient information available to have detected and corrected the errors before claiming reimbursement from the Commission.
Ingeborg Grässle, a German centre-right MEP who chairs the European Parliament’s budgetary control committee, said that the estimated error rate could not be ignored. She put the amount at about €7bn: “We are not talking chickenfeed. We must be concerned about this.”
“The member states need to pull up their socks,” she said.
She said the error rate in regional policy, transport and energy of 6.9% was “very worrying”. She flagged up the disparities between the Commission’s own estimates of error in that field (2.8%) and those of the ECA. “We cannot simply brush such matters aside,” she said.
Kristalina Georgieva, who this week took over as the European commissioner with responsibility for the EU’s budget, stressed improvements being made. She said the Commission did interrupt payments where it detected problems and she said steps were being taken to improve controls in the EU member states.
She also stressed that the Commission did make financial corrections on the basis of retrospective audits. There was, she said, a tension between the ECA’s annual report and the Commission’s multi-annual programmes because the Commission’s corrections would lag behind. The ECA makes its own estimate of the effects of corrections and recovery of money improperly paid out, saying that without them the error rate would have been 6.3%.
Georgieva welcomed the ECA’s emphasis on the need for improved performance, which would, she said, be a priority of the new European Commission.