Auditors give Kallas (more) grim reading

Publication of the European Court of Auditors’ report on EU spending in 2005 has prompted a bout of political mudslinging with Siim Kallas, the commissioner for audit and administrative affairs, voicing his frustration with the court’s approach. But the court is sticking to its line that the Commission still needs to do better, especially in terms of better management of internal policies and more checks.

The report, which was presented to MEPs on the budgetary control committee in Strasbourg on Monday (23 October), made grim reading for Kallas who has set his sights on getting the court to approve the EU’s accounts by 2009. The court’s President Hubert Weber said: "Overall the situation has not substantially changed since last year".

The court found that the "majority" of EU expenditure was still affected by a "material level of error in underlying transactions and weak internal control systems". Although Weber praised the move to an accruals-based system of accounting he highlighted the fact that the Commission had over-estimated its net assets.

Weber was at pains to stress that the court’s findings did not mean that the majority of payments were affected by errors or could be interpreted as an "indication of fraud". But errors with a financial impact were found "too frequently for the court to conclude that all is well", he said. He added that most errors occurred because beneficiaries of EU payments claimed more than they were entitled to. This could be due to simple

neglect or poor knowledge of the rules rather than attempts to defraud the EU budget, he said.

While the Integrated Administration and Controls System, which covers 56% of farm spending, was effective in controlling payments, the court highlighted problems with other areas such as olive oil where the auditors had found problems in all of the nine cases they had investigated.

The court was also sceptical about the clawing back of agricultural funds from member states, saying that the scheme did not extend to final beneficiaries.

On the structural funds, the court found "material evidence of error" and failures in member states’ supervisory and control systems including problems in 60 out of 95 audited projects.

While the report highlights failings in member states’ controls Weber was also critical of the management of internal policies such as research and development which are directly managed by the Commission. The report found a "material level of errors" in three quarters of transactions audited at final beneficiary level, including double charging of costs and a lack of supporting evidence.

The report also criticised the poor quality of checks or reductions in the number of checks carried out.

In reply, Kallas said the overall judgment of the court was "satisfactory". But he took issue with the report on a number of points. In particular, he argued that the system of farm payments where member states failed to carry out proper controls was effective and had recovered more than €2.1 billion. He said the scheme did persuade member states to improve their control systems and to recover unwarranted funds from end beneficiaries.

Kallas also challenged the court’s methodology of interpreting errors. He argued that finding a "material level of errors" did not mean that money had been lost or that the objectives of projects and programmes had not been met. Often it was a case of a difference of opinion on the quality of supporting documentation, he said, pointing out that the court had rejected 100% of expenditure for one project although only 5% of the scheme had been audited. "The work of finding errors by auditors is normal and eternal", said Kallas. But what was not normal was that "errors in filling in forms feed high profile political judgement".

Martin Engwierda, the Dutch member of the court, told European Voice that Kallas was trying to "minimise criticism of the court in an unfair way", pointing out that that the report had found problems in policies such as R&D and external actions where the Commission had sole responsibility for managing rather than it being the fault of member states. He also said that clawing back farm payments was not as effective as Kallas claimed as only about 40% of all money spent without proper controls was recovered.

A senior Commission official working on audit issues said that the Commission did have a problem with the court’s methodology because its approach failed to take account of the "real financial impact of errors".

He said that the Commission’s frustration and the arguments over methodology could be helped if the European Parliament and member states had taken up the Commission’s call to include the concept of "tolerable risk" of error. This would allow the Commission to focus its auditing resources on areas with major financial impact such as farming and structural funds but have a higher tolerance of error in areas where it was harder to ensure formal procedures were followed such as delivering humanitarian aid.

Publication of the European Court of Auditors’ report on EU spending in 2005 has prompted a bout of political mudslinging with Siim Kallas, the commissioner for audit and administrative affairs, voicing his frustration with the court’s approach. But the court is sticking to its line that the Commission still needs to do better, especially in terms of better management of internal policies and more checks.

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