Auditor: EU Financial Mismanagement Grows

The European Union misspent nearly 7 billion euros of taxpayer money in 2012. That’s the verdict of the European Court of Auditors (ECA), the EU’s official accounting body, in its annual report released November 5. Misspent funds represented 4.8 percent of the EU’s total budget, a significant increase over the 2011 misspending rate of 3.9 percent. This is the third consecutive year that EU misspending has increased. This is also the nineteenth consecutive year that the ECA has refused to give a clean bill of health to the EU’s budget.

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“Europe’s citizens have a right to know what their money is being spent on and whether it is being used properly,” said Vitor Caldeira, president of the ECA, presenting the report to the European Parliament in Brussels. “They also have a right to know whether it is delivering value, particularly at a time when there is such pressure on public finances.”

The EU’s total budget for 2012 was 138.6 billion euros. A small portion of the money that was misspent was likely lost to fraud. The ECA indicated that several instances of alleged fraud are currently being investigated. However, most of the misspending was on projects that were legitimate but not eligible for funding under EU rules.

These rules can be extremely complicated, and many of the instances of misspending resulted from confusion over eligibility. “The majority of errors arise from misapplication or misunderstanding of the often complex rules of EU expenditure schemes,” says the ECA report.

The problem is widespread. The ECA identified misspending in each of the main areas of EU spending. “All policy groups covering operational expenditure are materially affected by error,” their report states. The highest rate of error was for rural development, where 7.9 percent of funds spent (1.2 billion out of 15 billion euros) went to projects that were fraudulent or ineligible under EU rules.

The European Commission, the EU body that governs most of the spending, responded to the ECA’s report by pointing out how little of the misspending is connecting to fraud and by arguing that errors are inevitable. “In many areas it is unavoidable that errors are only corrected several years after they have occurred. Therefore, the Commission considers that the court’s [findings] should be seen in this context,” the Commission said in a statement.

The ECA’s audit found that national governments in the countries that comprise the EU (“member states”) are lax in monitoring the way EU money is spent within their borders. “Over half of the errors the Court found under shared management could have been corrected by national authorities before submitting claims for reimbursement to the Commission,” said Caldeira in his presentation.

He indicated that the problems are similar across all the EU member states. “The Court’s assessments of supervisory and control systems it examined showed there to be weaknesses at a wide range of national and regional authorities,” he said.

Some members of the European Parliament (MEPs) disagree and place blame directly on specific countries. “Noticeable problems persist, especially in Spain, Greece and Italy… Over the last few years Romania, Poland and the Czech Republic exposed increasing problems,” said Markus Pieper, a German MEP. He called on the EU to take tougher measures to reclaim misspent funds. He also believes the ECA should conduct country-specific audits of EU spending.

British MEP Marta Andreasen says she believes the misspending is tantamount to fraud. “If you fail to follow procurement rules and fail to get refunds for ineligible costs, then in my country this is called fraud,” she told the BBC.

The ECA’s annual report argues that lack of incentives to properly manage EU funds is a significant driver of misspending. Under the current system, if a member state is caught giving money to an ineligible project, it can simply redirect the money to another project. There is no penalty. Caldeira and other officials believe that going forward, if member states misspend funds, the EU should reclaim the money.

The EU is currently working on new budget rules for 2014-2020. The ECA’s report includes lengthy recommendations for policies intended to reduce the rate of misspending. Caldeira said he hopes an improved system can establish “a new management culture based on performance, with simple rules, clear objectives, and assessing outcomes that provide value to the European citizens.”

In the meantime, the ECA’s report has given ammunition to Eurosceptic groups. Nigel Farage, leader of the UK Independence Party, which campaigns for Great Britain to leave the EU, said, “It is about time the peoples of Europe were able to get this EU albatross off their backs, or at least out of their pockets.” Many people reading the ECA’s report are likely to agree with him.

Emma Elliott Freire is an American writer based in England. Euro image courtesy of Big Stock Photo.

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