Wednesday, June 01, 2016

Auditing the European Union - what the Auditors actually said

It is often alleged that the European Union's Auditors have not signed off the accounts for years.

This is no longer true, though it was true for many years up to and including 2006. However, the Auditors have made plenty of criticisms of the management of taxpayers' money by the European Union and by member governments spending money the EU has given them.

The Court of Auditors which is responsible for the audit of the EU's finances has made very similar criticisms on the spending of money contrary to EU rules for many years,  but they have clearly stated that they regard the accounts of the European Union for the most recent year (2014) and indeed all years since 2007, as having been accurately prepared in accordance with international accounting standards.

The Auditors' website specifically says that, quote  "the ECA have signed off the 2014 accounts of the European Union as they have done for every year since 2007."

Therefore the statement which has regularly been made by "Leave" supporters from Boris Johnson down during the current EU referendum debate, that the EU accounts have not been signed off for twenty years (or whatever time period is conjured up within the imagination of the person making the claim) is not correct.

Where the European Court of Auditors do have significant criticisms is of the way EU investment and spending is managed, and they say that the "error rate" of spending which is not in accordance with EU rules is too high. And we are talking billions of Euros not properly spent here.

So a "Remainer" who tells you that the European Court of Auditors have given the EU's finances a clean bill of health and a "Leave" supporter who tells you that the accounts have not been signed off for twenty years are both wrong. The truth lies between these two positions.

One defence which is sometimes used by supporters of the EU is that much of the mis-spending of EU money criticised by the auditors is actually down to individual governments. This statements contains some truth but does not get the Commission off the hook. The Auditors did indeed say that "Some Member States are struggling to absorb the EU funds they have been allocated." but added that this was partly because "The Commission has put funds at the disposal of Member States, without sufficiently considering their capacity to invest them."

Let's put all these comments in their proper context.

The ECA report on the most recent set of EU accounts available as at this post on the first of June 2016, which are the 2014 accounts, is available at http://www.eca.europa.eu/en/Pages/AR2014.aspx

And this is what they have to say about the accounts and how the EU spends its' money.

"the European Court of Auditors (ECA) calls for a wholly new approach to the management of EU investment and spending. Major changes are required by all those responsible for the way EU funds are managed. According to the ECA’s presentation of the report to the European Parliament, EU decision-makers must align the budget better with the EU’s long-term strategic priorities and make it more responsive in a crisis. EU legislators need to ensure spending schemes are clear about the results to be achieved and the risks it is acceptable to take; and financial managers have to ensure that the money spent complies with the rules and achieves the intended results.

"As independent auditors, the ECA have signed off the 2014 accounts of the European Union, as they have done for every year since 2007. They say in their latest report that the upcoming review of the EU’s current spending cycle provides an opportunity to re-think priorities, and warn that if the EU is to address the pressing challenges it faces, it must manage the Budget better. The EU needs to deal with a number of financial backlogs in order to free up funds so they can be used where they are most needed. Some Member States are struggling to absorb the EU funds they have been allocated. The Commission has put funds at the disposal of Member States, without sufficiently considering their capacity to invest them. At the same time, new ways of funding EU policies should not put financial risks beyond public scrutiny and audit.
 
ECA President VĂ­tor Caldeira said, “The EU must invest its money better. It must ensure its investments match its priorities more closely, simpler rules are framed to achieve results and resources are managed more efficiently.”
 
"In the report, the auditors give a clean opinion on the accounts. They also conclude that the collection of EU revenue was free from error. However, the ECA’s estimated error rate for expenditure was 4.4% (compared with 4.5% in 2013). This is not a measure of fraud, inefficiency or waste; it is an estimate of the money that should not have been paid out because it was not used fully in accordance with EU rules."

"The auditors found the same estimated level of error (4.6%) under shared management with the Member States and for expenditure managed directly by the Commission. The highest levels of error were found in spending under ‘economic, social and territorial cohesion’ (5.7%) and for ‘competitiveness for growth and jobs’ (5.6%). Administrative expenditure had the lowest estimated level of error (0.5%)."

"Corrective action and recovery by the Commission and national authorities in shared management areas had a positive impact on the estimated error rate. Without this action, say the auditors, the error rate for all spending would have been 5.5% rather than 4.4%. But they add that more errors could have been corrected and they call on the Commission to make full use of its powers to reduce errors further and recover misspent funds."

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