Wednesday, 6 December 2017

Fact: The EU accounts ARE signed off

Brexit campaigners and some of the British media often claim that the EU accounts have never been signed off by the auditors. But it isn't true.

As Klaus-Heiner Lehne, President of the European Court of Auditors stated this month about the latest EU accounts of 2016:
“We find that the EU’s accounts for 2016 present a true and fair view. We have approved them, as has been the case every year since 2007.”
All the EU accounts going back to 2007 were signed off each year by the independent auditors as legal, regular and reliable (i.e. accurate). 

(Before 2007 a different method of accounts was used - see note at the end of this article*).

The auditors criticised EU expenditure for having 3.1% of errors. However, the auditors congratulated the EU for bringing down this ‘error rate’ in recent years. The ‘error rate’ was 3.8% in 2015 and 4.4% in 2014.

President Lehne said that this, “reflects important improvement in EU spending.”

The estimated level of error is not a measure of fraud, inefficiency or waste. It is simply an estimate of the money already paid from the EU budget despite non-compliance with certain rules. 

These errors were specifically made by the receivers of EU funds, in EU member states at national government level, rather than in Brussels. 

Since 2006, EU budgets have suffered from an annual ‘error rate’ ranging from 3.1% to 7.3%. 

Anything above 2% is categorised as ‘material error’. 

The Auditors, however, commended the European Commission for making strenuous efforts in trying to reduce the error rate to 2% or below. 

Last year the Commission clawed back €3.4 billion in funding from EU member states, bringing the error rate to below 2%.

As the European Court of Auditors points out, the blame for the errors in expenditure ultimately lies with those who made incorrect claims for EU funding. Although, of course, better controls by member states and the EU should prevent those errors happening in the first place.

The total EU budget in 2016 was €136 billion and the error rate was 3.1%. So does that mean €4.2 billion (3.1%) of EU money was wasted? 

No, as the auditors point out, that is far too simplistic. The funds will have been used and spent on specific projects, often of benefit to EU communities, but not strictly in accordance with EU rules or conditions.

As clarified by the auditors:

'Some of the errors involve payments which did not meet eligibility conditions: for example, support given for research by a company classified as ‘small or medium’, even though it was wholly owned by a large company. 

'Some involve breaches of procurement rules, such as awarding an additional construction contract for an airport directly to a company, without giving other potential tenderers a chance to make their bids at the best possible price. 

'In these cases, EU funds may still have had some positive impact and provided some benefit even though they did not fully respect the conditions related to their use. On the other hand, some legal and regular expenditure may still be wasteful, such as a motorway built without any regard to traffic needs.'

The problems occur when the money leaves Brussels for spending by member states – and that’s actually how 94% of all EU money is used, in EU countries on policies and programmes for the benefit of EU citizens. 

National governments have primary responsibility for managing and controlling most EU money. That’s why the EU’s auditors have called on all EU member states – which includes the UK government of course – to play their part in helping to prevent errors. 

The auditors found that the one area of EU expenditure not affected by material error was the EU’s spending on its own administration. This actually shows that the European Commission has a tight control on its internal finances. 

As for fraud, this affects an estimated 0.2% of the EU budget – modest by international standards, and much better than many British government department budgets. Whenever fraud is suspected, this is passed to the EU anti-fraud office, OLAF, for investigation. 

For example, OLAF recently concluded investigations into fraudulent use of EU funds by UKIP MEPs. This included an investigation into former UKIP MEP, Ashley Mote, who was jailed for five years in July 2015 for defrauding the European Parliament of almost half-a-million pounds. 

Errors in expenditure are, of course, unacceptable. However, all governments across the world have a percentage of error in their accounts. 

US government accounts, for example, have had error rates higher than 5%. The UK government accounts also had a worse error rate than the EU. 

In the UK government accounts, fraud and error losses have been calculated to be equivalent to more than five per cent of government receipts, costing the British government more than £30 billion of losses each year. This is worse than the recent EU accounts. For example, according to the National Audit Office, Housing Benefit fraud and error in Britain in recent years was estimated at 5.8%.

The EU's audit processes have been described as more robust than those of the UK Government.

Former Comptroller and Auditor General, Sir John Bourn, stated that if the European Court of Auditors standards had applied to the British government’s accounts, he could not have signed off those accounts in total, because he had to give an adverse opinion on 13 of the UK government’s budgets.

The British media have often been at fault for perpetuating the myth that the EU accounts have never been signed off.

'Leave' campaigners regularly quote from a Daily Telegraph story from 2014 that claimed, 'EU auditors refuse to sign off more than £100 billion of its own spending.' 

However, the European Court of Auditors wrote to me to state that the Telegraph story was incorrect. The error rate did not affect the entire budget - as indicated by the Telegraph report - but only by the percentage of 'error rate' (in 2013, 4.7% of the budget, not 100%).

Added the Court spokesman:
"It is a frequent misunderstanding that the European Court of Auditors did not approve or sign off the EU accounts."
The European Commission representation in London told me: 
“The statement that the EU accounts have not been signed off by auditors for X years is a myth – one which we have exposed many times." 
So, those who are interested in facts, rather than fiction, here's a summary:

► The EU budget is always balanced, so there is no debt or deficit.

►The independent European Court of Auditors have signed off the European Commission accounts every year since 2007.

► The Auditors reported that the Commission’s accounts were accurate, legal, regular and reliable.

For 2016, EU Budgetary spending totalled €136 billion, representing about 1% of the 28 EU members GDP. (By contrast, the budgets of EU countries represent 49% of GDP on average.)

► The Auditors found that EU revenue was free of ‘material error’.

►The Auditors criticised the error rate of 3.1% of the EU's 2016 expenditure. But this 'error rate' is not fraud; it relates to expenditure not strictly applied according to EU regulations. The errors took place at national level by EU member states rather than in Brussels. The goal of the EU is to have an error rate of no more than 2%.

► The EU states that it 'claws back' undue payments from the project or country at fault. This can bring the average error rate to below 2%.

► Over 96% of all EU expenditure is in line with the rules.

► 94% of the EU budget is actually spent in EU countries on policies and programmes that benefit citizens directly.

► The EU budget has to be democratically approved by the European Parliament and agreed by the European Council, which comprises the democratically elected heads of member states.

(*From 1994 to 2004, the EU budget was subject to cash-based accounting. Improved accruals-based accounting was introduced in 2005. The European Court of Auditors gave qualified approval to accounts until 2006. The auditors have given a clean opinion on the accuracy and reliability of the accounts every year since 2007).


Other articles by Jon Danzig:

  • Watch Jon Danzig's video: How newspaper lies led to Brexit

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