Comment by Richard Corbett, UK labour Member of the European Parliament for Yorkshire and the Humber

The Court of Auditors said this week for the first time that the EU's accounts gave a "fair representation" of its finances

17-11-2008 @ 08:52 CET

EUOBSERVER / COMMENT - Every November, when the European Court of Auditors publishes its annual audit, eurosceptics, without fail, jump up and down saying that EU spending is riddled with fraud and corruption and can't sign off its own accounts. This year is just the same.

But, after taking a look at what the Court of Auditors (CoA) report actually says, the reality is somewhat different. For starters, the CoA, for the first time, states that the EU's accounts give a "fair representation …in all material respects" of its finances. In other words, the accounts themselves were signed off, but the CoA could not give a "statement of assurance" that all the actual financial transactions of EU money had been done in accordance with the rules.

In this, the EU is not alone. EU spending shares the weakness common to many large organisations, governments, ministries and international bodies: money is spent over such a range of activities and in so many places that the auditors cannot guarantee that the exact amounts are always and everywhere spent correctly. The US federal budget has not had a positive statement of assurance for about 10 years. The UK's Department for Work and Pensions has not had its equivalent statement for the last 15 years - and its budget is larger than that of the whole EU!

It should also be borne in mind that the European CoA works to more stringent criteria than most. Only if the error rate (and note that "error" is not fraud, but includes incomplete paperwork) is less than 2 percent does the CoA deem the European Commission's supervisory and control systems to be effective, between 2 percent and 5 percent is deemed "partially effective" and anything above 5 percent is deemed to be "not effective." Sir John Bourn, former head of the UK National Audit Office, has said that if he had used the same system as the CoA, he would have had to disqualify the whole of UK government expenditure.

After analysing the CoA report, the notion that there is systemic fraud can be immediately squashed. Since 2003, the Court of Auditors has referred a total of only 14 cases of suspected fraud to the EU's anti-fraud office which is responsible for investigation. Given the thousands of transactions examined every year, this is a remarkably low number. Although there are shortcomings, both at European Commission and national level, the problem is one of improving procedures and systems, in certain policy fields and certain countries in particular.

A mixed picture

The detail of the CoA's report gives a nuanced picture. As far as the EU's institutions themselves are concerned, the CoA gives an unqualified clean bill of health to their administrative expenditure, as it does for EU revenue. In terms of policy spending, for economic and financial affairs, the court also gives a clean bill of health, while it notes improvements, at national level, to the supervisory and control systems in the areas of research, energy, transport, and, at commission level, in the areas of external aid, and enlargement.

But in the largest area of EU spending - agricultural spending, environmental protection and CAP payments - the CoA finds that supervisory and control systems are only "partially" effective.

The court identified a number of weaknesses amongst Member States in terms of "day-to-day" checks to verify costs, tendering procedures and declarations of expenditure. In particular, the systems of checking payments and contracts in Bulgaria were found to be defective. However, blaming the EU institutions for mistakes made by national authorities, as a commission spokesman has said, is "like a referee in a football match getting the blame for fouls committed by players."

Nonetheless, for such cases, existing commission rules, whereby payments are only made if certain performance indicators are met, should be strengthened, and made time-bound, clear and unambiguous. In its conclusions, the court calls on the commission to make better use of corrective instruments such as payment suspension and financial corrections and recoveries. This advice should be urgently heeded by the commission.

For my part, I would also like to see a system where the annual statements of assurance had to be given to each commission department and each of the 27 national governments individually, rather than in one single statement for the whole EU. Governments would then have to take full responsibility for the EU funds managed by them with proper auditing at national level. If there were shortcomings in national authorities in appropriating EU funds, then funds could be recouped in the following year's budget. This would also improve the accuracy of the information provided and increase confidence in the system.

The process towards such a system has already started - 2007 was the first year in which Member States were required to produce an annual summary of all available audits and declarations. But this should be strengthened and made as comprehensive as possible.

Maybe one day we will be able to have a sensible and dispassionate debate in Britain about the EU budget and the way the cash is distributed. But I'm not holding my breath.

The author is a UK labour Member of the European Parliament for Yorkshire and the Humber