EU auditors blast ‘material and pervasive’ errors in annual accounts

Errors in the EU’s €240 billion budget last year soared to 5.6%, a level not seen since the financial crisis, the European Court of Auditors (ECA) has said in a report published on Thursday. 

For the fifth consecutive year, the EU’s budget watchdog offered an adverse opinion on the bloc’s spending, representing a formal red card, as member states rush to grab “buckets of money” from Brussels that have a spending time limit, the ECA said. 

“The substantial increase in the estimated level of error for the EU budget … is concerning,” ECA President Tony Murphy said in a foreword to the report, which found “material and pervasive” failings in 2023.  

The principal culprit was EU cohesion spending: errors in investment intended to develop the bloc’s poorest regions rose to reach 9.3% of spending, up from 3.6% in 2021, at a time when funding streams were expiring.

Last year, cohesion spend overlapped with a separate pandemic-era programme known as the Recovery and Resilience Facility (RRF) – and the time and capacity constraints may be to blame for the large number of ineligible projects receiving funding, auditors said.

There was “a lot of money there to be spent,” but “just throwing buckets of money at member states is not the ideal solution,” Murphy told reporters of the budget, which in 2023 saw total payments of €239bn, and outstanding commitments at €543bn.

‘Problematic’

“The RRF is problematic from an accountability and traceability point of view” as it’s “extremely difficult” to follow the costs, said Murphy. The ECA offered a yellow card – a qualified opinion — on the RRF, after a review found that one third of grant payments were noncompliant.

A controversial Covid-inked joint borrowing programme known as Next Generation EU has made the EU one of the largest debt issuers in Europe, the ECA report found – but it’s unclear how the €460 bn still outstanding will be repaid.

In principle the EU has a cascade mechanism to ensure debts will be honoured if the existing EU budget is exhausted – but with interest already costing hundreds of millions, repaying capital would squeeze EU budget spending even further, Murphy believes.

“Unless there’s another resource identified … other priorities will suffer,” he said, adding: “Unfortunately, as the name suggests, it will fall to the next generation of EU citizens to bear this.”

Ideas for new revenue sources for the EU have largely run aground – with EU member states sceptical about plans for new Brussels taxes on polluters, or company profits.  

Auditors agreed the EU’s 2023 accounts gave a true and fair view, and raised no qualms with the bloc’s sources of revenue – largely made up of contributions from national finance ministries.

Budget errors and irregularities don’t necessarily mean fraud or waste, the ECA stressed. But in 2023 the Luxembourg-based Court reported 20 cases to the EU’s anti-fraud unit, OLAF – a rise from just 12 the previous year.

In a statement, the European Commission said it “welcomes the ECA’s extensive work” which “contains valuable insights” –  but argued its five-year mandate had been marked by a “series of unprecedented crises.”

“The Commission agrees that improvements are needed, and it is acting accordingly,” the statement said.

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The EU executive itself calculates lower error rates, and explains the difference by citing divergences in methodology on minor or technical issues such as how to define staff headcount.

“The Commission considers that it has a robust assurance model in place, to prevent, detect and correct errors, with a view to keeping the error rate for each accounting year and programme below 2%,” a Commission spokesperson said, rejecting a number of the ECA’s detailed recommendations.

“Changing the approach to align with the ECA’s position halfway through the implementation period would be neither feasible nor consistent,” the spokesperson said, adding that the Commission would stick to the RRF’s underlying regulations.