A new audit report by the European Court of Auditors (ECA) raises a red flag for the increasing risk of double funding of EU’s COVID recovery fund but the European Commission disagrees.
The €648 billion Recovery and Resilience Facility (RRF) finances similar actions funded under the Cohesion Funds (€358 billion) and the Connecting Europe Facility (€34 billion). Double funding are likely to happen unless checks are in place to prevent and detect such cases.
Contrary to the other programmes, funding under the RRF is not based on actual costs incurred but on progress in the implementation of milestones and targets. This increases the risk that the same cost items could receive EU money twice, according to the auditors.
“Double funding is a misuse of EU funds and a waste of EU taxpayers’ money,” said Annemie Turtelboom, the Belgian ECA member responsible for the audit, at an on-line press conference (21 October). “And yet, the safeguards in place are largely insufficient.”
She is referring to the lack of a complete list of final recipients of the money and suitable IT-tools to cross-check projects funded under different EU instruments or by national co-financing “The RRF funding model was supposed to bring simplification. But simplification should not come at the cost of weakening the protection of the EU’s financial interests.”
The auditors noted that the Commission’s definition of double funding is not fit for purpose when it comes to the RRF funding model. Additionally, a major part of RRF financing– where reforms and other activities are considered ‘cost-free’ or ‘zero-cost’ – is simply overlooked, because the Commission considers that no double funding can happen in them by definition.
These projects are not checked at all, according to ECA. The financial watchdog stresses that although the Member States are not required to submit cost estimates for ‘zero-cost’ projects - and are reimbursed for them on the basis of progress - there are underlying costs in achieving the milestones in these projects as well.
The fragmented control ecosystem, involving layers of governance and hundreds of regional authorities, makes coordination and oversight challenging. Checking the absence of double funding largely relies on self-declarations by recipients of EU money. Any cross-checks are mainly carried out manually. As IT tools are not interoperable, this makes double funding difficult to detect.
No overview of recipients
A key condition for checking potential double funding is a complete list of final recipients of RRF funding but EU Member States were only obliged to establish lists of the 100 largest final recipients. Some Member States might have established full lists but there is no overview of them.
ECA itself cannot say which countries have complete lists and which countries only have lists of the 100 largest recipients. The auditors visited seven Member States, but even there (based on the information available to them) they could not confirm that the lists are complete. “We point out in our report that neither the Commission has direct access to the full list of final recipients.”
Asked how EU and Member States auditors could check double funding without full lists, a Commission spokesperson assured The Brussels Times that they would have access to such lists if and when audits are carried out on the spot.
In principle, the European Commission can ask for the lists of final recipients for audit and control purposes when specific milestones/targets are declared by Member States. But it would take a great deal of effort to collect this information as there overall are more than 7000 milestones/targets across all Member States and numerous bodies responsible for their implementation in each country.
“We are not saying that it cannot be done,” the EU auditors commented, “but that it is currently not being done systematically and not consolidated in one single database for RRF final recipients. In terms of using the information on recipients for checks on double funding, the Commission only does this as part of its audits, for a selection of milestones/targets.”
Shortly after ECA’s audit report was completed, the Commission revealed that it had identified the first two potential cases of double funding involving RRF money. The auditors were not at liberty to disclose the cases but added that another case of double funding had been found in its annual audit.
Contradictory response
In its reply, the Commission highlighted some key points for the press. While welcoming that ECA had not identified any specific instances of double funding, it insisted that double funding checks in relation to zero-cost measures “would not be aligned with the letter and spirit of the RRF Regulation, where double funding is a cost-based concept”.
The Commission did not agree with ECA that the RRF funding model (financing not linked to costs) leads to a higher risk of double funding. It continues to insist that a robust control system is in place to address the risk of double funding from the early phase of the design of the national recovery plans and throughout the delivery of the plans.
It did not come as a surprise that the Commission did not accept most of the audit recommendations concerning the need to clarify the definition of double funding and strengthen the control requirements for double funding under programmes and instruments using financing not linked to costs.
On a positive note, the Commission accepted ECAs practical recommendations to promote access to complete information on recipients of EU funding, so that double funding can be detected, and to encourage Member States to set up and use integrated and interoperable IT systems for the cross-checking, although those proposals in the past were not adopted by the co-legislators.
The new audit report should be read together with previous reports. ECA has raised the issue of the assurance gap in RRF in several reports, from its opinion report on the RRF before it was launched to the annual report on the 2023 EU budget, but the Commission has until now turned a blind eye to its findings and recommendations.
In the annual report, ECA issued an adverse opinion for the fifth time in a row on the EU’s spending because it concluded that the estimated level of error is material (above 2 %) and pervasive. The substantial increase in the estimated error rate is largely driven by the errors found in cohesion expenditure, that reached 9.3 % in 2023, compared to 6.4 % in 2022.
M. Apelblat
The Brussels Times
