Annual report of the European Court of Auditors 2014

10 November 2015
by eub2 -- last modified 10 November 2015

The European Court of Auditors gave the EU accounts on 10 November a clean bill of health for the 8th year in a row. Both the revenue side and administrative expenditure are free from significant errors. The overall error rate in payments has declined for a second consecutive year, to 4.4% in 2014. The Court also, in its annual report on the implementation of the EU budget in 2014, stresses the progress made by the Commission to increase transparency and absorption concerning the management of EU funds.

What is the European Court of Auditors' annual report?

The European Court of Auditors is the independent external auditor of the European Union. Each year, the Court publishes an Annual Report on the implementation of the EU budget in the previous year. The main component of this report is the 'statement of assurance' on the EU Consolidated accounts (checking if the books were well-kept) and EU expenditure (checking if the transactions were made in line with the rules), along with an explanation of the Court's findings.

The European Parliament takes the report into consideration when deciding whether to give its final approval on how the budget for a specific year has been implemented – approval known as 'discharge'.

Do errors mean that money has been lost or wasted?

No. Error rates do not mean that money has been lost or wasted. Errors often relate to formalities, such as a missing paper or a signature put on the wrong page. Errors do not mean that the projects have been badly carried out or that EU citizens are not benefiting from them.

What is the error rate found in the Commission budget over the years?

The error rate detected by the Court in the Commission budget varies from area to area. The least affected areas have been the ones where the Commission is directly responsible for the way the budget is spent, for example administration.

For Budget year 2014, the Court reports an overall error rate of 4.4%.

Is a large part of the EU budget affected by fraud?

Not at all!Errors are not the same as fraud. Errors occur mainly because final beneficiaries were not familiar with the often complex legislative and administrative framework.Fraud is different from errors - it is an intentional deception and a criminal act.

The Commission has a zero-tolerance policy on fraud. Any suspicions of frauds with EU money are reported to the European Anti-fraud Office (OLAF), either by the Commission or by the Court itself. EU citizens are also welcome to contact OLAF, if they are aware of fraud with the budget.

As a general rule, the Court only refers a very few cases per year to OLAF on suspicion of fraud out of the many hundreds of cases it looks at.

How does the European Court of Auditors prepare its report?

Throughout the year, the Court looks at projects paid for by the EU budget. It classifies the errors found through these audits as either quantifiable (i.e. with a potential financial impact, hence included in the error rate calculation) or not. The impact of these errors is then extrapolated into a "most likely error rate". The court then determines the error rate which affects the budget as a whole and the different chapters of the report, each of them dedicated to a particular area of activity.

If the error rate in a certain area of the EU budget is below 2%, it is classified as free from material error (i.e. all payments were made in line with the rules and requirements). If the error rate reaches or exceeds 2%, the spending area is classified as affected by material error.

What does the Commission do to avoid errors?

The Commission is actively working to reduce the error rate and has taken different steps to achieve this. The various measures to improve the management of EU funds include:

1. First, EU–funded projects must be of added value to society. This is why we have set up a reinforced performance framework focusing on the results. The Commission launched the initiative "EU budget focused on results" since the start of the mandate of this Commission, to make sure that EU resources are used effectively and are put to good use for the benefit of citizens.
2. Second, while focusing on results, the Commission remains committed to simplifying existing rules. As part of our drive towards simpler rules, the Commission earlier this year launched a High Level Group on Simplification for the beneficiaries of the European Structural and Investment Funds.
3. Third, rigorous financial corrections and recoveries are in place. The Commission takes a very strong stance on the principle that when an error is found, the money must be recovered. Between 2009 and 2014 period, the average amount of financial corrections and recoveries was EUR 3.2 billion or 2.4% of the average amount of payments made from the EU budget. This is an effective way of protecting taxpayers' money in the context of multiannual spending.
4. Fourth, EU spending by Member States, who manage 80% of the EU budget under the system of shared management, is better controlled. The Commission has developed incentives to encourage each Member State to further improve its management and control systems. The goal is to make them detect, report and correct irregularities before the EU audit - otherwise, they will lose the money they are entitled to.

All these tools help the European Commission makes sure that not a single cent is wasted and that money goes to the most cost-effective projects.

Why does the Commission not do more audits to avoid errors?

The Commission audits the implementation of EU programmes and projects at all levels. This comprises on-the-spot checks as well as audit by national authorities. Given the number of projects and programmes which are co-financed by the EU budget, the Commission cannot check all payments which were made to final beneficiaries, e.g. farmers, researchers and project managers. Moreover, Member States themselves are obliged to check and control the spending at national level.

It is important to remember that additional controls cost more money and may result in increased administrative burdens for national authorities and for the final beneficiaries. The Commission has to ensure a reasonable cost-benefit ratio of controls and has to make sure controls do not cost more than the added value they bring.

European Court of Auditors annual reports concerning the financial year 2014