"European Union STILL wasting billions every year as auditors refuse to sign off accounts for 18th year in a row... Court of Auditors refuses to give accounts a clean bill of health... again"

Daily Mail, 6 November 2012

"Audit 'seriously undermines credibility' of EU spending"

Daily Telegraph, 6 November 2012

The Mail and the Telegraph this morning bemoaned the accounts behind the European Union's €130 billion annual budget. According to the papers, auditors have refused to sign off the EU's accounts for the 18th year in a row.

This claim isn't new. Last year the same claims - for the 17th year at the time - were being made in the media and in Parliament.

Yet it contrasted starkly with the European Commission's own press release on the same matter a year ago: 

"Another clean bill of health for EU accounts; auditors find improvements in many payment areas."

And still contrasts almost as starkly today: 

"Overall error rate for EU spending below 4% for third year in a row: Court of Auditors' annual report."

So are these just two sides of a spinning coin or is there more to the figures?

The issue

The European Union's annual budget is audited every year by the Luxembourg-based Court of Auditors. They assess the revenues, payments (outstanding amounts owed by member states) and commitments (amounts it has committed to pay to member states) made by the EU and arrive at an opinion on the legality of the sums based on the extent to which they are subject to error.

Error - especially in budgets the size of €130 billion - happens. The EU Commission explains that the main reason for error is when recipients of EU funding break the rules - for instance a farmer claiming for financial assistance for 150 sheep, when in actual fact he doesn't have any.

This very example was featured in the Mail's subheading this morning. Sure enough, the Court of Auditors confirm this to be true:

"A farmer was granted a special premium for 150 sheep. The Court found that the beneficiary did not have any sheep. The corresponding payment was therefore irregular."

The Court's estimate for the financial impact of errors in the EU budget is 3.9%. That means the auditors have assessed - as a central estimate and where it can be quantified - that 3.9% of the budgetary expenditure is being overpaid in error. Again, in the jargon of the report itself:

"The Court concludes that the examined supervisory and control systems are partially effective in ensuring the legality and regularity of payments underlying the accounts...

"In the Court’s opinion, because of the significance of the matters described in the basis for adverse opinion on the legality and regularity of payments underlying the accounts paragraph, the payments underlying the accounts for the year ended 31 December 2011 are materially affected by error." [emphases added]

Crucially, the EU Commission is clear that "solid mechanisms" exist to recoup the lost funds, although it's not immediately clear what these involve. Nevertheless, it suggests that not all of the 3.9% of the Budget that is spent in error is actually 'wasted' as some of it is recoverable.

Is this normal?

Yes. The Court has been publishing these 'Statements of Assurance' since 1994, and have consistently found significant enough errors to feature in these statements. The 2011 report states that any level of error above 2% of the total budget is 'material'.

Assuming this 2% significance threshold has been constant, the chart below shows how errors in the EU budget have been consistently above this threshold since 2006, and hence the auditors have been constantly raising issues in each annual Statement of Assurance:

So whose fault is all this?

As with UK statistics on fraud and error in the benefit system, with which Full Fact is well accustomed, not all of these overpayments are necessarily fraudulent. The Court makes clear that only a small proportion of errors are a result of fraud:

"The overwhelming majority of errors arise from misapplication or misunderstanding of the often complex rules of EU expenditure schemes. If the Court has reason to suspect that fraudulent activity has taken place, it reports this to OLAF, the Union’s anti-fraud office, which is responsible for carrying out any resulting investigations. In fact, the Court reports around four cases per year to OLAF, based on its audit work.

The Commission also point out that Member States control 80% of EU funds with the remainder managed directly by the Commission. This means that, by and large, member states themselves are responsible for detecting and correcting errors.

In other words, there is a certainly problem in how some EU funds are paid out wrongly and its not immediately clear how much of this is corrected by the Commission. But crucially this isn't just a problem that originates from the EU's central bureaucracy but spans much wider into member states themselves.

Moreover, the EU Budget has not been "rejected" or "refused" by the auditors - its payments have been consistently found subject to significant error for the past 18 years. This is hardly good news, but it isn't as serious as some headlines imply.