European auditors: EU pandemic recovery fund checks of public procurement, state aid still not up to scratch

The European Commission (EC) still cannot be certain that EU countries have effective systems to ensure that the EU’s 650 billion euro Recovery and Resilience Facility (RRF) complies with public procurement and state aid rules, according to a special report published on March 10 by the European Court of Auditors (ECA).

The RRF has supported reforms and investments in EU countries since the start of the Covid-19 pandemic in February 2020, and will run until December 31 2026.

A total of 650 billion euro has been committed, consisting of 359 billion euro in grants and 291 billion euro in loans.

The RRF is a novel funding mechanism that is not based on actual costs incurred. The EC implements the facility under direct management, and bears ultimate responsibility.

The ECA said that relevant control systems in some EU countries show significant weaknesses.

Furthermore, the EC’s checks suffer from gaps in scope.

As a result, Covid recovery money could finance measures that have not been subject to robust public procurement or state aid checks, the auditors warn.

The 27 EU member states, as the beneficiaries of the pandemic recovery funds, must ensure compliance with relevant EU and national law, including rules on public procurement and state aid, the ECA said.

To this end, EU countries have to carry out checks and audits to ensure that their systems are effective.

For its part, the EC has to obtain assurance that national bodies regularly and effectively check compliance with the rules.

“Non-compliance with public procurement and state aid rules is a persistent problem in EU budget expenditure and, as our findings show, both the European Commission and the member states did not focus enough on this issue at the beginning, Jorg Kristijan Petrovič, the ECA member who led the audit, said.

“With hundreds of billions of euro still to be invested by the end of 2026, we hope that our audit will contribute to protecting the EU’s financial interests more effectively.”

Although the rules allow for different RRF control systems, the auditors found that most of the audited countries had weaknesses when it came to checking public procurement compliance.

The fact is that national authorities had issues with the coverage, quality and/or timing of their checks.

However, the picture is better for state aid, the ECA said.

Checks were mostly in place and covered the main risks, the auditors found.

However, national RRF audit bodies generally had no assurance on state aid when payment requests were submitted.

According to the auditors, unclear rules are partly responsible, as EU countries were given no detailed guidance on how to check EU public procurement and state aid rules.

As a result, the EC’s audit work initially focused on fraud, corruption, and conflicts of interest, rather than on public procurement and state aid compliance.

The EC has since improved its audit strategy, but the auditors still found problems, the ECA said.

For instance, not all EU countries that received RRF funding were checked with the same degree of detail for public procurement control and audit systems.

In addition, the auditors highlight shortcomings in the corrective action taken by EU countries, thus potentially hindering their deterrent effect.

In practice, EU countries do not always recover the money owed by final recipients.

When funds are recovered, they are not returned to the EU budget or deducted from future RRF payments.

The auditors acknowledge that this reflects the design of the EU’s recovery funds, where satisfactory fulfilment of milestones and targets is the main condition for payment.

However, they also warn that, in practice, this means that RRF payments can be made in full, even if public procurement or state aid rules have been breached.