Declining error rate in EU accounts but not enough spending by member states

For the second consecutive year since 1994, the European court of accounts (ECA) yesterday published a qualified or net opinion in its annual audit report on the EU accounts. The overall level of errors in EU spending in 2017 was estimated at 2.4% compared to 3.1% in 2016, 3.8% in 2015 and 4.4% in 2014.

EU spending totalled €137.4 billion in 2017. This amounts to around 0.9% of EU gross national income and 2% of total general governing spending in EU Member States. “All the more important that the EU budget should be spent effectively,” says ECA president Klaus-Heiner Lehne.

The estimate of the error rate is based on a statistical sample of about 700 transactions and the actual figure might be somewhat higher or lower. The error rate is still overall above the 2% threshold for material level of error which is considered as an acceptable error rate.

About half of EU spending audited in 2017 was below the materiality threshold. Errors were confined mainly to cost reimbursements, where the EU reimburses eligible costs for eligible activities. While Lehne found last year’s error rate tolerable but not acceptable he was more pleased this time.

Asked by the Brussels Times about the error rate at a press briefing yesterday, he said that it becomes more difficult the closer the rate comes to 2 %. “We’ll never have a perfect situation. We don’t need more controls but should apply existing controls better.”

According to the auditors, the error rate is not a measure of fraud or waste of money but an estimate of irregular spending against the rules such as ineligible costs and lack of supporting documents. In the audit only 13 cases of suspected fraud were found and duly reported to Olaf, EU’s anti-fraud office.

As last year, the auditors write that sufficient information was available to prevent, detect and correct a significant proportion of errors. Why this information had not been used was not clear.

In view of the improvement in the management of EU’s finances, ECA piloted a new audit approach in the area of cohesion policy by relying more on checks and controls previously carried out by those responsible for the spending.

ECA plans to expand this approach to other spending areas next year. This will enable the EU supreme audit institution to use less resources on the annual audit report – currently almost 50 % of its resources – and more on performance auditing.

The number of special reports, most of which are based on performance audits, have been increasing but the trend seems to have been temporarily broken in 2017 with 28 reports compared to 36 in 2016.

The ECA president criticized the inflexibility of the EU budget system which resulted last year in an all-time backlog in outstanding commitments or payments in member states of €267 billion. “There is obviously a gap between planning and implementation,” says Lehne. “Something is wrong in the system. The money will eventually be spent but too late.”

The country at the top of not spending its allocated EU budget in time is Poland with €33 billion in outstanding commitments, followed by Italy and Spain. In Poland this amounts to 17 % of government expenditures.

“It’s not for the ECA to give our views on the size or allocation of EU expenditure,” says Lehne and declined to comment on the discussions on withdrawing funding in next multi-annual financial framework (2021 – 2027) to member states that do not comply with EU values or its common policies.

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