Increase in EU budget spending errors

The European Court of Auditors (ECA) has warned that errors in EU budget spending have increased amid increased demands on EU finances from the Covid pandemic and the war in Ukraine .

While the annual auditors’ report concludes that the EU accounts for 2021 give “a true and fair view”, payments from the EU budget to member states are “still marred by too many errors”.

An error occurs when money should not have been paid out because it did not comply with relevant EU rules, or when it is not used in accordance with specific national rules.

The annual report also indicates that fraud cases have increased from six cases in 2020 to 15 in 2021.

These cases were reported to the European Anti-Fraud Office (OLAF), which opened five investigations.

Presenting the report, Irish Member of the Court of Auditors Tony Murphy, who was recently elected President, said: “With the war of aggression in Ukraine, the energy shortage, the coronavirus pandemic and climate change, the EU is forced to deal with the consequences of a series of unprecedented crises at the same time.

“Such an environment creates increased risks and challenges for EU finances and makes it all the more important that the European Commission manages them soundly and effectively.”

The report finds that the EU budget’s total exposure to potential future liabilities more than doubled in 2021, from €131.9 billion to €277.9 billion.

This was mainly due to the issuance of 91 billion euros in bonds to finance the EU’s Covid recovery fund and a 50.2 billion euro increase in financial assistance to member states to protect jobs affected by the pandemic.

Auditors warn of risks from war in Ukraine

The auditors also warned of the risks that the war in Ukraine posed to the EU budget.

At the end of 2021, Ukraine had outstanding loans with a nominal value of €4.7 billion under several EU programs. The European Investment Bank has also granted loans to Ukraine, covered by EU guarantees, for an amount of 2.1 billion euros.

The annual report found that the overall level of spending errors increased in 2021 to 3%, from 2.7% in 2020.

Among the flaws highlighted was an Irish emergency accommodation scheme for asylum seekers which the report said lacked proper processes, incomplete contracts and poor monitoring of facilities.

The “emergency assistance project”, which was funded by the EU’s Asylum, Migration and Integration Fund (AMIF), involved the provision of emergency accommodation, including meals.

Auditors found that because the state did not have sufficient capacity to house asylum seekers, the government appealed for interest in renting rooms in hotels and guesthouses.

The auditors checked a sample of ten invoices included in the State’s complaint to the European Commission and audited the procurement procedure which led to the signing of contracts between the State and the hotels and bed and breakfasts.

At the end of 2021, Ukraine had outstanding EU loans of €4.7 billion, and the European Investment Bank also granted loans to Ukraine, covered by EU guarantees, for a value of 2.1 billion euros.

Officials found many shortcomings, including that the Irish authorities failed to “provide certain key procurement documents and information” and that those offering accommodation are treated unequally.

The report states that “an offer was rejected because the hotel in question had too few rooms available, but offers from other hotels with the same or even less capacity were accepted.

“As a result, we have no evidence that these contracts were awarded on the basis of applicable public procurement legislation. We have therefore considered 100% of the declared expenditure as ineligible for EU funding.”

The report does not highlight the sums involved, although it is understood that they are in the thousands of euros.

However, in a response, the European Commission said that while “the absence of documents had not enabled the ECA to verify the correct implementation of the procedure”, other information provided by the Irish government indicated that the project had been properly implemented.

The Commission said the procedure put in place by the Irish authorities ensured that those eligible for emergency accommodation could receive assistance.

“The provision of services, accommodation and meals is not in question, and the Commission is satisfied with the operational results of this emergency aid project,” the Commission said.

However, following the question raised by the Court of Auditors, the Commission would send a mission to Ireland to “ensure appropriate procedures to remedy the shortcomings identified” and to see if any funds should be recovered from the State.

The majority of the money received from the EU budget, 1.55 billion euros, was disbursed under
“natural resources and environment”, which includes direct payments to farmers

The annual report revealed that in 2021 Ireland contributed €300 billion to the EU budget and received just under €2.7 billion, meaning the state was a contributor net to the EU of 300 million euros.

The majority of Ireland’s contribution was based on a percentage of the state’s gross national income (GNI), which was €2.4 billion.

Other main sources include €390 million in customs revenue collected on behalf of the EU, when goods are imported into Ireland from the rest of the world, and VAT-based contributions of €285 million.

The majority of funds received from the EU budget, €1.55 billion, went under ‘natural resources and the environment’, which includes direct payments to farmers of just under €1 .2 billion euros and 350 million euros related to the European Agricultural Fund for Rural Development.

Ireland is set to receive some €915 million in RRF grants for the period 2021-2026, with the first installment of €395.5 million due in 2023.

According to the report, the state will also receive €1.165 billion in grants from the Brexit Adjustment Reserve Fund between 2021 and 2025, to mitigate the impact of Brexit on “the economic, social, [and] territorial consequences” of Brexit.

Ireland received €361.6 million in December 2021 and €276.7 million in May 2022.