European auditors: Irregular EU spending increased
As in previous years, the estimated level of error in spending from the European Union budget has increased, according to the European Court of Auditors’ annual report, published on October 10.
The auditors also warn of the growing financial risks facing the EU budget due to a record amount of debt, Russia’s war of aggression against Ukraine, and high inflation.
Although the auditors conclude that the EU’s accounts for the 2023 financial year give a true and fair view, and that revenue transactions can be considered error-free, they are concerned about the increase in the level of error to 5.6 per cent (2022: 4.2 per cent; 2021: three per cent) affecting the 191.2 billion euron in spending from the EU budget.
In addition, irregularities affect a part of the 48 billion euro spent under the Recovery and Resilience Facility (RRF), the main pillar of the EU’s pandemic recovery package NextGenerationEU (NGEU).
The auditors found payments for which not all conditions were met, and weaknesses in the member states’ control systems.
“As we reach the midpoint of the 2021-2027 financial period, our annual report findings highlight critical challenges facing the EU budget, including high levels of irregular spending”, said ECA President Tony Murphy.
“These challenges underscore the need for robust oversight and accountability structures at both the member state and EU levels in order to maintain public trust and safeguard future EU budgets”.
As in the past four years, the auditors conclude that the estimated level of error was material and pervasive, and have thus issued an adverse opinion on the EU’s spending in 2023.
The auditors highlight that the substantial increase in the estimated error rate is largely driven by the errors found in Cohesion expenditure reaching 9.3 per cent (2022: 6.4 per cent).
They refer to the time pressure on national administrations to spend money from competing EU funds as a possible reason for their difficulties in ensuring proper funding of Cohesion projects.
As the projects affected by error correspond to those financed under the RRF and are often controlled by the same national bodies, the auditors point to the risk that similar types of error exist for RRF expenditure.
However, under the RRF, compliance with EU and national rules is not a pre-requisite for member states being paid, and so they are not systematically checked.
The year 2023 was the thirdof implementation of the RRF, under which EU countries receive funds in exchange for achieving predefined milestones or targets. Twenty-three grant payments were made to 17 member states in 2023.
The auditors found that around a third of these RRF grant payments did not comply with the rules and conditions.
As a result, six payments were affected by material error.
The auditors also identified cases of design weaknesses in milestones or targets, and persistent problems with the reliability of information that member states included in their management declarations.
The auditors therefore issued a qualified opinion on RRF expenditure.
According to the auditors, the EU budget figures show that some situations require close attention. The total amount of outstanding commitments – which represent future payment obligations if they are not decommitted – reached a record high of 543 billion euro by the end of 2023 (2022: €452.8 billion).
Meanwhile, EU debt jumped to 458.5 billion euro in 2023 (2022: 348 billion euro, or +32 per cent), mainly because of borrowing for NGEU of 268.4 billion euro.
EU debt is now twice as high as in 2021 (when it stood at 236.7 billion euro).
This means that the EU is now one of the largest debt issuers in Europe, even though it is unclear whether the European Commission’s own resources proposal will generate sufficient revenue to repay NGEU debt.
Additional costs for NGEU borrowing are estimated to range between 17 billion and 27 billion euro.
The auditors also point out that high inflation continues to affect the EU budget.
Based on the Commission’s inflation forecast, they estimate that the EU budget could lose nearly 13 per cent of its purchasing power by the end of 2025.
The EU budget’s total exposure, measuring the risk related to EU budget guarantees and contingent liabilities, was 298 billion euro by the end of 2023 (up from 248.3 billion euro in 2022).
The EU’s financial assistance to Ukraine more than doubled in 2023 (from 16 billion euro to 33.7 billion euro).
The auditors warn that transferring the risks of possible defaulted repayments to the future could put pressure on the EU budget.
They highlight the considerable risks associated with the Ukraine facility set up in 2024 to provide financial support for an additional amount of up to 33 billion euro in loans from 2024 to 2027, which does not require provisioning.
(Illustration: G Schouten de Jel)
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