Misspent and missing: The Billions from European Union funds

More than €4 billion of European Union money has been misspent, squandered or cannot be accounted for, according to the EU’s court of auditors.

More than 4 billion euros ($4.3 billion) of European Union funds were misspent last year, EU auditors estimated in a report released on Tuesday, which highlighted poor checks in receiving states on how the bloc’s funds are invested.

This can be added to the 9 billion lost to fraud over recent years.

The annual assessment is likely to fan the heated debate about the bloc’s next seven-year budget which Germany, the largest contributor to it, wants to cap below EU proposals meant to address new expenses on migration, social security and job-creation.

The European Court of Auditors (ECA), which is responsible for assessing the annual 155-billion-euro EU budget, estimated that an average of 2.6% of last year’s EU expenses were irregular, up from 2.4% the previous year.

Because of that, auditors could not give a clean-sheet assessment of the budget and issued a “qualified opinion” on the regularity of payments, the court said in a note.

The president of the court, Klaus-Heiner Lehne, said the irregularities detected were not a reason for big concern as they represented a small amount of the budget and were mostly caused by complex payment rules.

However, he warned about sectors in which higher levels of errors were found, especially when EU funds were paid as reimbursements for research, development projects in poorer regions of the bloc or aid to emerging economies outside the EU.

Around €1.2billion of financial irregularities were in discovered in projects aimed at “reducing development disparities between different member states and regions of the EU”, according to the report.

Most of these funds were dished out as part of the EU’s €54.5billion economic, social and territorial cohesion war chest.

Out of the 220 transitions filed last year, 36 “quantified errors” were found to have gone undetected by senior officials and auditors in the member states.

Sixty other errors were detected domestically before the EU-wide watchdog’s final investigation into the bloc’s spending.

The irregularities amounted to around five percent of total spending in the area, according to the Court of Auditors.

It could not provide more precise figures because its finders were based on sample checks and statistical estimates.

Billions in EU funds Lost to Fraud

The EU lost more than nine billion euros (UK$8 billion) to fraud between 2002 and 2017, with Member States often doing little to prevent or punish those identified as suspects, a new report revealed.

The European Court of Auditors – the financial watchdog of the European Union – said only 2.6 billion were recovered based on investigations conducted by the European Anti-Fraud Office, OLAF.

Out of the 541 cases OLAF recommended should have gone to court, just 308 did and of those that did, 171 were dismissed due to “insufficient evidence” and only 137 resulted in indictments.

The report claims that “the scale of fraud is underreported,” so it is likely that the figures are much higher.

“We found that the European Commission lacks comprehensive information on the scale, nature and causes of fraud” especially due to the lack of information sharing between Member States, the report said.

The audit notes a number of issues preventing OLAF from recovering fraudulently spent EU money, such as that “under the current EU legal framework, the main responsibility for enforcing anti-fraud legislation lies with the Member States.”

However, between 2007 and 2013 only ten EU states reported less than 10 cases of suspected fraud and among those who reported the fewest were some of the EU’s most high-risk states on corruption, including Bulgaria and Hungary where journalists found evidence of major corruption.

Further, the reporting threshold for the monitoring of EU payments is set at 10,000 euros ($11,500), and some of the projects most susceptible to instances of fraud lie below that threshold – namely, agricultural projects.

One particular solution enables Member States to bar known fraudsters from EU contracts in an EU database called EDES. However, the European Commission had excluded just 19 economic operators between 2016 and 2018, even though there were 820 suspected EU fraud cases in 2016 alone.

Another solution developed by the Commission includes an IT platform, Arachne, for “identifying the riskiest projects and beneficiaries” of EU funds.

It states that the EU needs “a robust fraud reporting system, providing information on the scale, nature and root causes to fraud”.

The European Public Prosecutor’s Office (EPPO), an EU body which will have the power to investigate and prosecute crimes against the EU’s financial interests, has been slated to begin operation in 2021.

Sample checks

In some of these fields, irregularities amounted to around 5% of total spending, the court said. It could not provide more precise figures because its findings were based on sample checks and statistical estimates.

Irregular payments are usually the result of mistakes or the wrong application of EU rules but in the worst cases they can hide full-fledged fraud. Only for a handful of payments did the court raise concerns to investigative authorities, the report said.

Last year, the EU anti-fraud office OLAF recommended the recovery of 371 million euros of EU funds because of criminal abuses.

The irregularities detected are likely to represent a fraction of all errors in EU spending because of the limited resources available to auditors to conduct checks.

Authorities in EU states where EU money is spent are not always very keen to help. Irregularities in spending could lead to reimbursements of funds that in some EU states, especially in the east and the south of the bloc, are crucial for local economies.

EU auditors found more than 70% of the irregularities emerged last year in spending on poorer regions of the bloc, the ECA report said, while authorities of the 28 EU states detected the remainder.

In some cases, EU auditors detected errors in projects that had already been approved by national authorities. “Member states’ auditors need to get better at doing their checks,” said one EU official.