Budgetary juggling under fire

Date: 17/10/1996

By Michael Mann

THE 'creative accounting' used by the European Commission to balance the farm budget books comes under fire in a report by the EU's financial watchdog due to be published next month.

Its attack will raise question marks over the way the Commission has juggled the figures to help fund aid for farmers hit by the BSE crisis.

The Court of Auditors' annual report will sharply criticise the practice of funding aid programmes with unused money from previous years to avoid overshooting spending ceilings.

The auditors' criticism centres on a decision taken late last year to draw on the 1995 budget to pay sheep farmers a second advance of 470 million ecu - which should have come out of the 1996 budget - to prevent this year's spending from rising above the agricultural guideline.

The report declares that this “violates the principle of budgetary annuality and gives a misleading picture of the financial situation for both 1995 and 1996”.

Yet the technique was used again only last month to make an extra 500 million ecu available for beef farmers.

The agricultural chapter of the Court's report will also warn that considerable shortcomings remain in EU controls on farm spending, despite past warnings of the need for improvements. It highlights several sectors where action to rectify weaknesses in the system has fallen well short of its expectations.

The olive oil sector, often singled out for criticism and due for reform in the coming months, is one example. The report declares that “the huge administrative effort for manage-ment and control of production aid did not result in a reliable system”. It points out that of the five countries which produce olive oil, only Italy has a fully operational olive cultivation register.

Ironically, spending on anti-fraud measures in the farming sector also comes under attack, with both member states and

the Commission criticised for failing to “rigorously monitor and control” the declaration of costs for Community co-financed schemes, resulting in losses last year of over 17.5 million ecu allocated specifically for fraud-busting.

Investigations in Germany, Spain, Italy and France uncovered numerous examples of requests for Union money to pay for control measures, without the correct documentation to justify such payments.

Reviewing the agrimonetary scheme under which support payments to farmers are converted into national currencies, the Court suggests that the system has placed too much emphasis on protecting farming incomes rather than reducing agricultural expenditure.

It also warns that last year's decision to freeze the agricultural conversion rates of the group of “strong currency” countries, led by Germany, “undermined the principle of common support levels” for European farmers. As a result, premiums introduced under the 1992 reform of the Common Agricultural Policy are now paid at different levels in different countries.

Already hit by this year's decision to prevent it from marketing cheese in the Union under the name 'feta', Denmark comes in for serious criticism for failing to ensure proper checks on feta exports which earned 480 million ecu in export refunds between 1990 and 1994.

Pointing to 16 million ecu in excess export refunds paid out during the period, the Court says it has already referred the matter to the Commission “for appropriate follow-up”.

The report also highlights faults in the Commission's record on combating classical swine fever.

It points out with some incredulity that despite the existence of rules specifying that meat from infected animals was not to be used for human consumption, the Commission still allowed Germany to process it and export it to Russia. Even worse, no measures were taken to ensure that the meat in question was not reimported into the Union.

The report reviews progress on a number of controversial dossiers criticised in investigations carried out between 1990 and 1992.

Admitting that recent reforms of the cotton sector might make a difference in the long-term, it nevertheless points to “evidence that fictitious quantities of unginned cotton, upon which EU aid has been paid, appear in the records of the ginning mills and that producers were dividing land parcels in order to receive the small producers' aid”.

In the rice market, as elsewhere, the Court's report stresses the importance of relying more heavily in future on satellite monitoring.