EU accounts improved, but still imperfect

Improvements in regional policy spending marred by deterioration in agriculture and rural development

The European Union’s auditors today gave their most favourable verdict yet on how the EU budget is spent, but still refused to give a clean bill of health.

Spending on cohesion policy – largely the regional aid programmes – was, as last year, the most problematic, but the level of errors underlying the transactions has been much reduced.

That improvement is, however, offset by some deterioration elsewhere. According to estimates by the auditors, the level of errors underlying spending on agricultural and rural development was worse during 2009 than in 2008. The error rate for spending on education and citizenship policies has also deteriorated, but those policies amount to only 1% of EU spending, so the overall effect is less serious.

Payment management

Between them, cohesion policy (32%) and agriculture and natural resources (48%) make up 80% of the EU’s spending. In both cases, the European Commission is reliant on the member states to manage the payments effectively.

The European Court of Auditors (ECA) is required by the EU’s governing treaty to carry out a two-fold task each year: to audit the annual accounts of the EU and to audit the legality and regularity of the transactions underlying the accounts.

On the first score, the ECA approves the accounts saying that they present fairly, in all material respects, the financial position of the EU and the results of their operations and cash flows.

On the second score, the ECA says that that the payments for economic and financial affairs and for administrative spending pass the requirements for legality and regularity.

But in the other policy areas, the payments are “materially affected by error” – meaning an error rate in excess of 2% – and the supervisory and control systems are only partially effective in preventing or detecting and correcting the reimbursement of overstated or ineligible costs.

An error rate of above 5% is deemed by the ECA to be very serious. The error rate for cohesion policy was 5.5% – the only policy area above the 5% threshold – but in the previous two years the error rate had been “at least 11%”, so some significant improvements have been made.

Vítor Caldeira, the president of the ECA, said around three-quarters of the error rate related “to serious failures of national authorities to apply the rules on public procurement”.

The rest, he said, came from paying costs that did not meet the criteria of eligibility for reimbursement.

The court’s report said that it found errors of 2%-5% in agriculture spending, which Caldeira said was “somewhat higher” than the review of the EU’s 2008 budget, when the overall error rate for agriculture spending was below 2%.

Over-declarations

Caldeira said most errors came from over-declarations of land eligible for agricultural use in order to benefit from EU farm handouts. Of the 241 aid transactions audited under farm programmes, 27% were found to be affected by error.

The vast majority of errors or irregularities are not fraud, and the Commission does recover some of the money where irregular payments have been made. But Kersti Kaljulaid, a member of the ECA, said it would refer two cases, one from agriculture and the other from cohesion funds to OLAF, the EU’s anti-fraud office, in the months ahead.

Algirdas Šemeta, the European commissioner for taxation, customs, anti-fraud and auditing issues said he was pleased the auditor’s report reflected better management of EU funds.

“There is always more that can be done and the Commission will continue its intense efforts to ensure that EU funds are properly accounted for and well spent,” he said.

On the management of the European Development Funds that supports the African, Caribbean and Pacific countries, which are not part of the EU budget, the ECA approves the accounts and says that the underlying payments are not materially affected by error.