Think like an accountant

Date: 06/11/1997

As the Court of Auditors prepares to publish its annual report on Union spending this month, Dr John Peterson argues that the EU institutions need more powers to tackle the 'irregular' use of funds

VIEWERS of the 1992 Olympic Games in Albertville and Barcelona may have been impressed at the extent to which the EU - its flag, anthem and symbols - were featured alongside those of the host nations, France and Spain.

Surely, few European taxpayers were aware that the Union had paid for a third of the cost of the opening ceremony at Albertville and nearly half in Barcelona.

Even fewer probably ever knew that the European Commission was later condemned by the Court of Auditors for investing so much in an exercise with such a low pay-off, as (in the Court's words) the concept of "dual loyalty on the part of athletes and of using the Community flag when medals were being awarded came to nothing".

The incident was a microcosm of the problems of blurred accountability for what the EU does and spends.

It highlighted the tendency for Union funds to be used for dubious purposes when it saves member states money; the Commission's inattention to the details of new schemes which appear to further European integration; and the Court of Auditors' constant snapping at the heels of other EU institutions. With support growing within the European Parliament for a special committee of inquiry into unresolved allegations of fraud, the delivery within a fortnight of the Court of Auditors' annual report on Union spending and tough negotiations ahead on a seven-year 'financial perspective' for 1999-2006, the time is ripe for hard thinking about why so much EU funding appears to end up being wasted.

The Court of Auditors' annual audit usually underlines the point that EU funds are not wasted through accidents or corruption very often. Rather, the problem lies in rules which are poorly drafted, the offhand attitude of member states towards compliance and weak central controls over revenue and expenditure.

Estimates of how much of the EU's budget is wasted are usually speculative and ultimately unreliable. The Union is caught in a vicious circle: it is impossible to know what resources are needed to combat fraud because it is unclear how much fraud exists. Disagreements about the scale of the problem are a convenient obstacle to doing anything about it.

No problem can be solved unless it is clearly defined, and it is important to be clear on four points which define this one.

First, if corruption means the use by individuals of public positions for personal gain, the EU is a comparatively corruption-free system of government.

Despite recent questions (especially from the Parliament) about how effectively the Commission investigates itself when allegations of corruption arise, the institution appears to be a relatively 'clean' bureaucracy, especially when compared to many national administrations in Europe.

The Commission's recruitment procedures are highly selective and a relatively small amount of money actually passes through its hands. Usually, it is too small for corrupt officials to 'hide' and remain unnoticed for very long.

Moreover, an extraordinary number of hurdles must be jumped before the Commission can spend EU funds. Obviously, it often has strong incentives to ignore or evade these hurdles, but doing so risks exposure by the Court of Auditors.

The Court does not hesitate to flag cases where even a small amount of money is wasted by any EU institution if it will attract attention, embarrass those who are guilty and deter similar acts in the future.

When possible corruption is detected, as in the recent cases of the Commission's units for tourism and tobacco, it tends to occur where the institution's staffing is minimal, the relevant legislation is highly complex and only experts with specialised knowledge have any chance of spotting any wrongdoing.

But the Santer Commission, particularly under the influence of Budget Commissioner Erkki Liikanen, has gone a long way towards establishing a new culture of financial control and 'value for money', and curbing the tendency to equate, almost automatically, bigger budgets with more European unity. The European Parliament also has played an important role in pushing the Commission to account better for what it spends.

More generally, the generous system of payment for officials may actually help prevent corruption. Arguably, the EU's administration comes about as close as any to replicating Max Weber's ideal type of a 'clean', high-performance bureaucracy. Ample remuneration for those who join the EU's services lowers incentives for officials to exploit their public positions for private gain.

A second and related point is that corruption is a far less serious problem for the Union than fraud: that is, improper or dishonest behaviour leading to the use of resources for unforeseen or unintended purposes.

There is no legal definition of 'EU fraud', which helps explain why the Court of Auditors usually employs the term "irregularities". Fraud is generally not subject to Community law, and thus the same 'fraudulent' behaviour is often a crime in one member state but not in another, or not the same kind of crime in each.

Thus, we can see that EU member states have pooled sovereignty, or the supreme power to make laws, at the level of the Union, without pooling accountability, or effective power to control public activities, at the same level. Thinking comparatively, governments are accountable to parliaments, and ultimately to voters, in most national systems. In the EU, the Commission is, in important respects, accountable to MEPs, but ministers who serve in the Council are responsible to their national parliaments. Accountability is thus fragmented, with few clear hierarchies or straight lines of answerability.

The problem is not simply one of overlapping or divided accountability, since these characteristics of the Union are also common to federal systems, such as Germany or the United States. The problem is that the EU has uniquely feeble 'federal' institutions. Member states have kept the 'top' tier of Union governance weak, at least on questions of expenditure control, thus making national executives less answerable for what they do.

A third point arises from the first two: fraud will remain endemic to the EU as long as those with the strongest interest in eliminating it are not given greater powers.

The European Commission is often described as the Union's 'executive', but most EU policies are 'executed' by member states, which are responsible for spending about 80% of the Union's 85 billion ecu annual budget. The Commission (and other EU institutions) which have the strongest interest in controlling fraud lack the policy tools to do it. Member states have the tools, but only weak incentives. When national administrations detect fraud, reporting it puts them at risk of reduced future receipts from the EU budget.

Fourthly and finally, the most pernicious effect of the communautaire culture which pervades Brussels is not the excesses of the EU's central institutions, as considerable as they sometimes are. Far more damaging is the Union's uncritical acceptance of the sanctity of national customs and practices that condone or even promote waste, fraud and inefficiency.

The institutions are frequently battered and blamed for the Union's ills by its member states, as well as one institution (the Parliament) regularly flogging another (the Commission). But national systems and controls remain beyond reproach, even when they are fundamentally corrupt and wasteful, or make fraud in the use of EU funds inevitable.

Any suggestion by one member state that another's national practices might need to be reformed is taboo.

Fraud will remain one of the clearest failings of the EU until much that is now unspoken becomes openly debated. One need not be a dewy-eyed federalist to argue that achieving better value for money means giving more power to the Union's central institutions. One needs only to think like an accountant.

John Peterson is Jean Monnet senior lecturer in European politics at the University of Glasgow in Scotland. The issues raised in this article are explored at greater length in the journal 'Political Studies' (vol.45, 3, 1997), published by Blackwell and the Political Studies Association of the UK.

Major feature. As the Court of Auditors issues its annual report, the writer argues that the EU Institutions need more powers to tackle the 'irregular' use of funds.