European Court of Auditors’ 2007 Annual Reports - briefing

The European Union's accounting books have been given a clean bill of health by the European Court of Auditors. The Court also found that the majority of EU payments it checked were regular, though errors were still too frequent in some areas, particularly in spending on EU regions and to boost employment (cohesion policy), where grants are managed by national authorities. Outside of this area, the Court estimates that 95% or more of payments are error free.

"Are the EU accounts always wrong?"
No, the Court gives a clean opinion on the accounts - the problems are in the underlying payments.

The Court's Statement of Assurance (DAS) provides opinions on both the reliability of the accounts and on the regularity and legality of the underlying transactions. The accounts now give a fair presentation, in all material respects, of the EU's financial position and results. The underlying payments in most spending areas however have a too high level of error.

"14th year without a clean opinion - does the Court's audit approach make it impossible to get one?"
No, but the situation has to improve more before this will be possible.

The Statement of Assurance is a reflection of the present situation. The nature of EU expenditure - millions of payments based on self-declaration - implies a high inherent risk. The complex rules in many areas, such as rural development, can be misunderstood and result in errors.

The Court’s audit approach has been designed in consultation with external private and public sector experts. It includes detailed testing by statistical sampling following international auditing standards.

"Material level of error in most spending - so most of EU funds are paid out illegally?"
No, most payments checked are made in compliance with the rules.

An error is a deviation, identified by the auditor, from what is required by the applicable regulations. A material level of error means that the Court estimates the financial impact by value to be above 2%. Except for in Cohesion, the estimated level of error is under 5 %.

Illegal or irregular spending is by definition not implemented in line with the legislator's intentions. The effectiveness of EU spending is however not specifically addressed in the Court's Statement of Assurance. Issues of this kind are analysed in the Court's performance audits, published in special reports.

"Do errors mean fraud?"
No, they don't.

Errors are made for a variety of reasons by beneficiaries claiming funds and by the authorities responsible for making payments. Fraud is a special case. If the Court has reason to suspect that fraudulent activity has taken place, it will report this to OLAF, the Union's antifraud office, which is responsible for carrying out any resulting investigations.

"Isn't most money paid out in error recovered later?"
No, there is no evidence that this is the case.

In many areas mechanisms exist for recovering incorrectly made payments to the EU budget. It is sometimes claimed that, over time, these mechanisms correct or compensate for the errors detected by the Court.

The Court's audit however shows that there is a serious lack of information on the impact of these mechanisms. Based on this lack of evidence, the Court concludes that they cannot yet be taken to be effective.

"Is the Commission doing something about the level of error?"
Yes, but it is too early to assess the impact of some of the measures taken.

Since 2000 the Commission has been working on a reform programme to improve the management of the EU budget, including a 2006 action plan for this purpose. By the end of 2007 the Commission had introduced two thirds of the sub-actions in the action plan. It is however too early to asses the impact of these measures.

"Don't Members States also have a role to play in reducing the level of error?"
Yes, but the Commission retains the overall responsibility.

For around 80% of spending - cohesion and agriculture - the task of budget implementation is shared with the Union's 27 Member States. Depending on the spending schemes, national administrations may be responsible for setting spending strategies, selecting beneficiaries and projects, making payments and checking the expenditure.

Although the Commission retains the overall responsibility for the implementation of the budget, Member States play an increasing role in supervisory and control systems. 2007 was for example the first year for which they were required to produce an annual summary of required available audits and declarations on EU spending. Some Member States also issue national declarations on their own initiative.

Source: European Union