EU spending continues to be marred by “too many errors”, according to the latest report by the European Court of Auditors.

The Luxembourg-based institution independently reviews the implementation of EU policies and spending programmes. While the EU’s accounts for the financial year 2020 gave “a true and fair view” and revenue could be considered as “error-free”, it was a different story on the payment side.

The auditors issued an adverse opinion on expenditure for the second consecutive year. They also identified risks and challenges relating to the implementation of billions of new EU funds that are being made available in response to the Covid-19 crisis.

High-risk expenditure

The overall level of irregularities in EU spending had remained at 2.7 percent in 2020 – exactly the same level as the year before. In 2020, more than half of the audited spending (59 percent) was considered high-risk expenditure, an increase of six percentage points compared to 2019.

Material error continued to affect high-risk expenditure at an estimated rate of 4.0 percent (2019: 4.9 percent), the auditors found. As part of their audit work, they also discovered six cases of suspected fraud in 2020 – fewer than in 2019, when nine cases were reported. The European Anti-Fraud Office (OLAF) has opened investigations into all of them, the ECA said in a press release on Monday.

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ECA President Klaus-Heiner Lehne stated: “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.”

New financial instruments

The EU response to the COVID-19 pandemic will have a 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 MFF period.

The court also found that the absorption of the European Structural and Investment (ESI) Funds by member states had continued to be slower than planned. By the end of 2020, the final year of the current seven-year budget, only 55 percent of the agreed EU funding for 2014 to 2020 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”, said the institution in its press release.

EU funds often not used

The auditors noted that considerable differences existed between member states. While Finland, for example, had absorbed 79 percent of its total allocation by the end of 2020, the three countries where the absorption rate was lowest (Italy, Croatia and Spain) had used less than half of their committed amounts.

In 2020, EU spending amounted to €173.3 billion, representing 1.1 percent of the combined gross national income of its member states and the UK, which was then still part of the EU’s single market and customs union.

About two thirds of the EU budget is spent under shared management, a system under which the member states distribute funds, select projects and manage the EU’s expenditure.

Each year, the auditors assess EU revenue and expenditure, examining whether the accounts are reliable and whether income and expenditure transactions comply with the applicable rules at EU and member state level.

Independent audit

The EU’s accounts are prepared by applying accounting rules based on international public-sector accounting standards. They give an account of the EU’s financial position at the end of the previous financial year, and its financial performance throughout it. The EU’s financial position includes the assets and liabilities of its consolidated entities at year-end, both short-term and long-term.

A “clean” opinion means that the figures present a true and fair view and follow the rules of financial reporting. A “qualified” opinion means that the auditors cannot give a clean opinion, but the problems identified are not pervasive. An “adverse” opinion indicates widespread problems.

In order to reach this audit opinion, the auditors test samples of transactions to provide statistically based estimates of the extent to which revenue and individual spending areas are affected by error. They measure the estimated level of error against a threshold of 2 percent, this being the rate above which irregular revenue or spending is considered to be material. The estimated level of error is not a measure of fraud, inefficiency or waste: it is an estimate of the money that was not used fully in accordance with EU and national rules.