EU auditors: More worried about the future budget than about pervasive errors in the 2020 budget

EU auditors: More worried about the future budget than about pervasive errors in the 2020 budget
ECA President Klaus-Heiner Lehne, credit: ECA

The European Court of Auditors (ECA) have signed off the 2020 EU accounts as giving a true and fair view of the union’s financial position but like in the previous year identified pervasive errors in the spending and issued an adverse opinion.

The auditors are also concerned about sound financial management in next budget period when the EU will manage a much bigger budget and the member states will receive billions in recovery and resilience assistance to tackle the post-Corona challenges.

In the new annual audit report, published yesterday (25 October), ECA issued an adverse opinion on expenditure because over half of EU expenditure in 2020 was deemed to be high risk with an estimated error rate of estimated rate of 4.0 % (2019: 4.9 %).

The full audit report is over 300 pages. An audit in brief (60 pages) can be found here.

In particular cohesion spending in the EU member states continue to be prone to errors. This year, the proportion of hight-risk expenditure increased to 59 %.

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 rules and eligibility criteria governing this type of expenditure are often complex, which makes errors more likely.

However, the overall level of irregularities in EU spending has remained stable, at 2.7 % in 2020 (2019: 2.7 %). 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.

On the positive side, only six cases of suspected fraud were reported in 2020, fewer than in 2019, when nine cases were reported. The cases were reported to EU’s anti-fraud office, OLAF, and to the European Public Prosecutor’s Office (EPPO) for investigation. This however is a small comfort according to ECA because the auditors do not look for fraud cases and they are discovered by chance.

ECA President Klaus-Heiner Lehne, a German lawyer by profession and a former member of the European Parliament, is not yet sure if EPPO will become the game changer he expects.

“I cannot give a final answer on that,” he told The Brussels Times when he presented the audit report at a virtual press conference. “We concluded recently an agreement with EPPO. They already got a lot of cases and have direct access to law enforcement authorities in the member states. Ask me again in two years.”

“In view of the great challenges that lie ahead of us, we must remain even more vigilant about the financial soundness of the EU”, he said.

“Over the next seven years, the EU will spend significantly more than in the previous programme period. The 27 Member States agreed on a COVID-19 recovery programme, which will be financed by issuing public debt. This decision marks a major shift in EU finances. It entails an obvious need for effective checks on how EU money is spent, and on whether the intended results are achieved.”

He promised that ECA will audit the implementation of the new rule of law mechanism. “There is always a connection between the rule of law and budget spending,” he said.

The EU response to the COVID-19 pandemic will have a very substantial impact on the EU’s finances: for the 2021-2027 financial period, the combined funding allocation from the Next Generation EU (NGEU) instrument and the multiannual financial framework (MFF) will be €1 824 billion, almost twice the amount of spending in the previous budget period.

Currently, ECA employs about 900 staff, of which 600 are directly involved in auditing. More than 40 % of its audit work is spent on compliance and financial audits, such as the audit of the EU accounts. At the same time is delivering a stream of special audits, based on performance auditing. The implementation and reporting of the NGEU instrument will be more result-oriented.

To cope with the audit tasks, ECA has requested more resources from the budgetary authorities, the Council and the Parliament, in total 40 temporary posts. The ECA President is confident that his request will be granted.

“If we don’t get the additional funding, we won’t be able to do the work as we want.”

As in previous years, ECA points out that member states’ absorption of the European Structural and Investment (ESI) Funds has continued to be slower than planned. By the end of 2020, the final year of the current seven-year budget, only 55 % of the agreed EU funding for the 2014-2020 period had been paid out.

This has had the effect of inflating outstanding commitments, which reached €303.2 billion by the end of 2020, the equivalent of nearly two annual budgets.

The auditors note that there are considerable differences between member states. While Finland, for example, had absorbed 79 % of its total allocation by the end of 2020, the three Member States where the absorption rate was lowest (Italy, Croatia and Spain) had only used around 45 % of their committed amounts.

Belgium has also low absorption rate of only 49%, leaving it with €1.4 billion in unused funds. “It would be worthwhile for Belgium to investigate, to see why there is still so much money available that is not used,” said Annemie Turtelboom, the Belgian ECA member, in an interview. “It is good to have money, but it is even better to spend it intelligently and quickly.”

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.  This did not happen and EU stayed with the old rules.

“We aren’t happy about it,” the ECA President said and referred to the lack of planning and administrative capacity in some member states. Still, he expected that the funds will be spent at the end but did not exclude difficulties in some countries.

Not to forget is that UK owes EU money since it ceased to be an EU member state on 1 February 2020. At the end of last year, the EU accounts showed a net amount of €47.5 billion due from the UK based on mutual obligations set out in the withdrawal agreement.

ECAs audit was heavily affected by the travel restrictions during the Corona virus crisis and most of the work had to be done by desk reviews instead of audits on the spot. To a certain extent, ECA compensated for that by video conferences and new technological means such as satellite imaging.

“It’s not the same,” Klaus-Heiner Lehne admitted, “you lose soft information and the feeling when examining on the spot.”

His colleague, Irish ECA member Tony Murphy, added that some things might have been missed because of lack of missions to the member states. Coordination with their audit institutions was not possible because they had their own problems and could not visit their own beneficiaries.

In 2020, EU spending amounted to €173.3 billion, representing 1.1 % of the combined gross national income of the EU member states and the UK.

‘Natural resources’ made up the largest share of funds (34.9 %). ‘Cohesion’ spending accounted for 34.3 %, and ‘Competitiveness’ spending for 13.9 %. About two thirds of the budget is spent under shared management, a system under which the member states distribute funds, select projects and manage the EU’s expenditure.

M. Apelblat

The Brussels Times

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