The European Court of Auditors (ECA) warned today EU’s legislative and budgetary institutions that the crisis response mechanisms for the next seven-year budget lack provisions to ensure sound financial management of EU funds.
EU has put forward a €750 billion package, Next Generation EU, to support member states in their efforts to minimise the socioeconomic impact of the pandemic and get back on a path of sustainable growth.
As part of the package, the European Commission proposed amendments of current legislation to make an additional €58 billion (in current prices) available in 2020 – 2022. The proposal, known as REACT-EU (Recovery Assistance for Cohesion and the Territories of Europe), will top up cohesion funding for EU countries in the crucial first few years of the Covid-19 recovery.
Before deciding on the Commission’s proposal, the Council and the European Parliament requested ECA’s opinion on the proposal. ECA acted rapidly and delivered its opinion within one week after the requests.
In the opinion published today (14 July), ECA points out a tension between the proposal’s aim of providing the extra funding as swiftly as possible and the goal of making it available where it is needed most and will have most effect.
According to ECA, the proposal gives member states a free hand in terms of how to use the additional funding and lacks detail on how it will be coordinated with other EU instruments and national schemes. This creates the risk of fragmenting or duplicating EU support. Rushed spending might also prioritise absorption over value for money.
Due to the lower absorption rates of some member states there is a risk that they may not be able to spend the additional money effectively. ECA notes in particular that some of the member states likely to be hit hardest by the COVID-19 pandemic are also among those with the lowest absorption rates for the current programming period.
The proposal also includes a new method for allocating the additional funds to member states which may be distorted by the use of unrepresentative figures for unemployment in the calculations. In the proposal, most of the additional funding is calculated on the basis of the unemployment levels in June-August 2020.
In those member states where temporary job retention schemes are still in place in that period, this may lead to an underestimation of the true level of unemployment, as unemployment rates are likely to rise once these schemes end, according to ECA.
By providing significant additional funding in a short period of time, the new instrument also carries a higher risk of irregularity and fraud. ECA quotes Europol that has warned that “Economic stimuli such as those proposed in the wake of the COVID-19 pandemic will be targeted by criminals seeking to defraud public funding.”
Last but not the least, the absence of mandatory common indicators will make it difficult to assess effectiveness at the EU level. There is no requirement for an ex post evaluation specifically on the additional REACT-EU funding.
ECA’s opinions have usually a preventive effect and might save future mismanagement of EU funds. The EU institutions have now a short time to address the shortcomings in the proposal and mitigate the risks identified by ECA.
The Brussels Times