The European Court of Auditors (ECA) has signed off the 2019 EU accounts as giving a true and fair view of the union’s financial position but warns about pervasive errors in the spending. The auditors are also concerned about next budget period when they might have to audit a much bigger EU budget with the same audit resources.
In the previous three years ECA issued qualified opinions on the EU accounts but not this time. In the new annual audit report, published today (10 November), ECA issued an adverse opinion on expenditure because over half of EU expenditure in 2019 was deemed to be high risk with an estimated error rate of 4.9 %.
Cohesion spending in the EU member states continue to be prone to errors. This year, the proportion of hight-risk expenditure increased to 53 %, largely due to a rise in Cohesion spending,
Due to the weight of high-risk expenditure type in total spending, ECA considers that the errors are pervasive – present in the entire audited population or a significant part of it. High-risk expenditure mainly refers to the reimbursement by the EU of eligible costs for research projects, investments in regional and rural development, and development aid projects.
The overall level of error for all EU spending in 2019 slightly increased to 2.7 % compared to was 2.6 % in 2017. This is still above the 2% threshold for material level of error which is considered as an acceptable or inevitable error rate. The actual figure might be somewhat higher or lower as the auditors are basing their estimates on a sample of transactions.
ECA underlines that the estimated level of error is not a measure of fraud, inefficiency or waste but an estimate of the money that should not have been paid out because it was not used fully in accordance with EU and national rules. As in last year, the auditors found only 9 instances of suspected fraud, defined as an act of deliberate deception to gain a benefit.
Tony Murphy, the Irish member of ECA, explained at a virtual press conference yesterday, that ECA is not specifically looking for fraud in its annual audit but reports suspected cases to OLAF, the EU anti-fraud office, if they happen to identify them. In other reports, ECA has examined fraud management in the EU.
EU spending in 2019 totalled €159.1 billion. This amounts to around 1.0 % of EU gross national income and 2.1 % of total general government spending in the EU member states. About two thirds of the EU budget is spent under “shared management’, where it is the member states that distribute funds, select projects and manage the EU’s expenditure.
ECA President Klaus-Heiner Lehne does not think that the member states have been backsliding in their control efforts but nevertheless issued a stark warning at the press conference. He is a German lawyer by profession and a former member of the European Parliament who in 2019 was elected for a second term of three years as President of the court of auditors.
“Our adverse opinion on EU spending for the year 2019 is a reminder that we need clear and simple rules for all EU finances – and we also need effective checks on how the money is spent and whether the intended results are achieved”, he said.
He took also the opportunity to look ahead. “This is particularly important in view of the planned recovery fund to combat the effects of the COVID-19 pandemic. In these times of crisis, the European Commission and the member states have a tremendous responsibility for managing the EU’s finances in a sound and efficient way.”
ECA is using about 40 % of its audit resources for the annual compliance audit of the EU accounts. In recent years there has been a trend towards more performance auditing but the almost doubling of the EU budget in next period (2021 – 2027) will not allow to ECA to reduce the share of compliance auditing, which is mandatory, and rather require more audit resources to ECA.
“We have sufficient resources for the work we are doing now,” explained the ECA president, “but it will be a problem to do the work in next budget period with the same resources.”
Trust in the EU and its spending is more important than ever, he said. “Our role is to give a clear picture of the EU budget and contribute to accountability and transparency.”
Asked by The Brussels Times about ECA’s cooperation with the new European Public Prosecutor’s Office (EPPO), he replied that it is not fully operational and has not yet become the “game changer” as he thought. The office was established last year to investigate, prosecute and bring to judgment crimes against the EU budget.
As in last year, ECA highlighted the problem with the member states’ absorption of EU funding. Up to the end of 2019 only 40 % (€184 billion) of the agreed EU funding for the 2014- 2020 period had been paid out, and some member states had used less than a third. This has inflated outstanding commitments, which reached €298 billion, the equivalent of almost two annual budgets.
“For many years, we have voiced our concern about the growth of outstanding commitments in the EU budget and recommended that the Commission take action to counter the trend,” ECA commented.
“A high level of outstanding commitments increases the budget’s financial exposure, bringing a risk that not enough payment appropriations will be available to cover all amounts due in the first years of the new seven-year budget (MFF).” According to the Commission’s own estimates, the outstanding commitments will increase to about €308 billion by the end of 2020.
ECA’s recommended last year changes in the budget rules to speed up the budget planning and avoid last minute spending but no changes were made to the general budget rules. “However, this year, due to COVID-19, the EU passed measures providing more flexibility in using EU funds which may speed up the absorption of funds,” the audit team explained.
The audit team told The Brussels Times that it is not possible at this moment to estimate how much of the EU funding is likely to be lost by the member states, as it depends on the progress of implementation of projects in the countries. “The member states still have three more years to declare expenditure, and the new flexibility measures will also play a role in helping absorption.”
Update: In a press release today (10 November), the European Commission welcomed the ECA audit and focused on the positive sides of the report.