EU auditors launch fresh attack on budget controls

Date: 22/10/1998

By Rory Watson

THE European Commission and member states are bracing themselves for a wave of criticism from the Court of Auditors next month over the way they managed the Union's multi-billion-ecu budget in 1997.

This year's report from the Union's financial watchdog will reveal that the auditors uncovered "a high incidence of formal errors across most areas of the budget" last year, as they have done every year since 1994, although it will acknowledge that some improvements have been made.

A draft version of the report states that the majority of these errors reflect the failure of authorities in member states to administer the EU's agriculture and structural fund programmes "in accordance with the systems of control established by Community regulations".

The 1997 report focuses mainly on accounting systems and techniques rather than highlighting individual examples of fraud and financial mismanagement, as past reports often have.

In relation to agriculture spending, the Court concludes that the errors uncovered stemmed from inadequate administrative and physical checks by national inspectors of the type of crop and acreage for which farmers were claiming EU subsidies. Where regional and social funding is criticised, member states are taken to task for failing to keep comprehensive accounting records.

Criticism of the Commission is aimed largely at its handling of research contracts. Drawing on a random sample of 820 advances paid in relation to different contracts, the auditors found that more than one in ten, worth a total of 13.5 million ecu, "were paid in an irregular manner".

In its draft report, the Court advises the Commission to increase the quality and number of controls on its research budget to prevent overpayments to participants claiming more than they spent or was authorised.

The Court complains that its audit "again showed an unacceptably high incidence of substantive errors in the transactions underlying the Commission's payments".

These occurred when an inadequate knowledge of the rules resulted in the Union financing aspects of regional and social spending which were not strictly eligible for EU funding, a grey area which the Commission has since tightened up.

Similar anomalies were uncovered by the auditors in the Union's external policy. Their draft report maintains, for example, that the administrative costs of a Commission office in eastern Europe were covered by budget lines intended to finance operational expenditure.

The report, which will be formally presented to the European Parliament in Strasbourg next month, is equally critical about shortcomings in the collection of revenue for the Union from customs duties and value added tax levied in member states.

It points out that three countries - Germany, the Netherlands and the UK - were between one and six months late in handing over 7.3 million ecu to the EU budget and, despite Union legislation, none had to pay interest on the sum as a penalty.

Of greater importance for national and Union coffers is the Court's calculation of an annual gap of 70 billion ecu between the VAT which should have been generated in nine member states and the amount actually collected. This shortfall has doubled in the past ten years.

The auditors' annual inquiry also reveals that the Union is nowhere near the cutting edge of new technology in improving the financial management of its annual 82-billion-ecu budget.

Details of agricultural advance payments have to be input manually, because 13 member states do not send the necessary data to the Commission electronically. Furthermore, the computer system installed in 1988 for the Directorate-General for agriculture (DGVI) cannot communicate with and transfer data to its opposite number in the budget department handling farm spending, largely because one system uses national currencies and the other ecu.

A senior Commission official last night said the institution welcomed comments on the way its systems operated. "Some improvements for structural funds were introduced at the start of the year and there are even more in our Agenda 2000 proposals now before the Council of Ministers," he added.

Preview of the European Court of Auditors' annual report on the EU budget for 1997.