Thursday, October 13, 2016

Have the EU's Auditors signed off the accounts or not?

Today the EU Commission issued a statement saying that the European Court of Auditors have signed off the EU's Accounts for 2015.

On the basis of the same report by the Auditors, Guido Fawkes website alleges that the EU's accounts have not been signed off for the 22nd year in a row.

Surely it must be a relatively simple matter to say which of them is right and which of them is wrong?
Afraid not.
The statement from the Commission is true but to some extent misleading: the form of words used by Guido Fawkes is wrong but insofar as he is writing that the EU Auditors have raised issues with the spending of EU money for many years and did so again in 2015, that IS true, and they did find that EU expenditure in 2015 was, quote, "materially affected by error."
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 22 years are both wrong. The truth lies between these two positions.
It is unequivocally true that the European Union's Auditors refused to sign off the EU accounts for many years up to and including 2006. This was one of the reasons for the sacking of the Santer Commission. 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,  
However, in their report on the accounts of the European Union for 2014 and indeed all years between 2007 and 2014, the European Court of Auditors signed off the accounts 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."

(The above is a quote from the EU auditors' own website and can be found here.)

So what have the Auditors now said about 2015?

The first of four key paragraph in their report on the EU's 2015 accounts reads as follows:

"Opinion on the reliability of the accounts

VIII. In our opinion, the consolidated accounts of the European Union for the year ended 31 December 2015 present fairly, in all material respects, the financial position of the Union as at 31 December 2015, the results of its operations, its cash flows, and the changes in net assets for the year then ended, in accordance with the Financial Regulation and with accounting rules based on internationally accepted accounting standards for the public sector."

It is on that basis that the EU Commission say that the Auditors have signed off the accounts as an accurate record in accordance with international Accounting standards and this is a reasonable position to take, but - wait for it - that is not the whole story.

The Auditors also signed off the EU's income, saying

"Opinion on the legality and regularity of revenue underlying the accounts

IX. In our opinion, revenue underlying the accounts for the year ended 31 December 2015 is legal and regular in all material respects."

So is Guido talking complete rubbish, then?

Actually, no.

The auditors also have this to say about the EU's expenditure:

"Basis for adverse opinion on the legality and regularity of payments underlying the accounts

X. Expenditure recorded in 2015 under the multi-annual financial framework headings covering operational spending is materially affected by error. Our estimated level of error for payments underlying the accounts is 3.8 %. Our overall conclusion is driven by the higher estimated level of error for spending on a reimbursement basis and is corroborated by the Commission’s analysis of amounts at risk presented in the annual management and performance report for the EU budget."


"Adverse opinion on the legality and regularity of payments underlying the accounts

XI. In our 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 2015 are materially affected by error."

Is that all perfectly clear now?

I thought not.

OK, let me try to summarise. The European Court of Auditors have made over many years and continue to make significant criticisms 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.

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 statement contains some truth but does not get the Commission off the hook. The Auditors did indeed say last year 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 European Court of Auditors called last year 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.
ECA President Vítor 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.”
It is clear from the report on 2015's accounts which has just come out that the auditors regard this problem as far from being solved, and although the error rate for expenditure is on a slow downward trend (3.8% in 2015 compared with  4.4% in 2014 and 4.5% in 2013) it is still too high.

Incidentally, the error rate does not directly measure 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.

But we are still talking billions of Euros of European taxpayers' money not spent properly and that is simply not good enough.

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