Fraud and responsibility for EU funds

Budget cow

There is an excellent own-initiative report up for vote in the European Parliament plenary next week. The Musotto report (doc) relates to the 2005 and 2006 annual reports of the Commission on the protection of the Communities’ financial interests and the fight against fraud.

The worst finding of the report is that vast amounts of EU funds are paid out irregularly or fraudulently due to lack of compliance on member states side. On top of that such cases appear to happen primarily in big member states – and in the so-called net-payer countries. This is ironic as these countries are the strongest advocates of “financial prudence”, continueing to demand tougher limits on the overall budget of the EU. At the same time precisely the same countries let go of their national control systems over agriculture and structural expenditure as well as revenues from televisions, cigarettes and counterfeit products. I really wonder why in particular governments like Germany, the Netherlands or the UK still get their way and no serious bashing from national media, parliament and the public?
In consequence the Parliament report rightly calls on the Commission to make use of infringement procedures and the withholding of funds in countries where the more severe cases happen. I say that this is the least thing to do and I regret that Council does not take any official position on this (or indeed serious action at member state level). I just wish there was more exposure of the findings within individual countries! The figures are embarassing enough. Now at least the Dutch finance minister, due to massive pressure from national parliament, announced to vote against the discharge in Council. But according to EUobserver he would remain to be the only one (obviously you cannot track voting record in the Council through its website…).
But the challenge is also for Parliament. It could withhold discharge of the 2006 budget at least for half a year through a suspensive votes in the April plenary. If then by autumn member states and the Commission have not delivered better control mechanisms and significant recoveries, the Parliament should either not grant discharge (meaning the Barroso Commission would fall) or simply put massive reserves on agricultural and structural funds as a precondition for passing the 2009 budget. But I assume that MEPs are too reluctant to go into a big institutional fight before an election year.

Here some quotes from the report (bold from me) – it speaks for itself:

3. Notes that in the areas of own resources, agricultural expenditure and the Member States’ structural actions, irregularities notified in 2006 totalled EUR 1 143 million (compared to EUR 1 024 million in 2005, EUR 982,3 million in 2004, EUR 922 million in 2003 and EUR 1 150 million in 2002); the amounts notified by the Member States to the Commission in 2006 can be broken down as follows:
own resources: EUR 353 million (EUR 328,4 million in 2005, EUR 212,4 million in 2004, EUR 269,9 million in 2003 and EUR 367 million in 2002),
– guarantees under the European Agricultural Guidance and Guarantee Fund (EAGGF): EUR 87 million (EUR 102 million in 2005, EUR 82,1 million in 2004, EUR 169,7 million in 2003 and EUR 198,1 million in 2002),
structural actions: EUR € 703 million (EUR 601 million in 2005, EUR 694,5 million in 2004, EUR 482,2 million in 2003 and EUR 614,1 million in 2002);

notes, too, that in the area of pre-accession funds irregularities notified in 2006 totalled EUR 12,32 million (EUR 17,6 million in 2005);

6. Notes that, as far as own resources are concerned, the amount affected by irregularities rose by 7% from EUR 328 million in 2005 to EUR 353 million in 2006; the products most affected by irregularities were televisions (EUR 69 million in 2005; EUR 62,3 million in 2006) and cigarettes (EUR 30,9 million in 2005; EUR 27,6 million in 2006); the number of cases in Italy (+122%) and the Netherlands (+81%) rose sharply; EUR 113,4 million (32%) was recovered in 2006;

7. Notes that, as far as agricultural expenditure is concerned, the amount affected by irregularities fell from EUR 105 million in 2005 to EUR 87 million in 2006; Spain, France and Italy were responsible for 57,2% of the irregularities, or a total of EUR 64,9 million, while the sectors most affected were rural development, beef and veal, and fruit and vegetables;

16. Points out that the amount affected by irregularities relating to structural actions increased by 17%, from EUR 601 million in 2005 to EUR 703 million in 2006 (Structural Funds EUR 517 million, Cohesion Fund EUR 186 million); these irregularities related mainly (75%) to the European Regional Development Fund (ERDF) and the European Social Fund (ESF); Germany, Spain, Italy, Portugal and the United Kingdom accounted for approximately 85% of the amount affected (EUR 438,1 million) relating to the Structural Funds in 2006; in many cases the beneficiaries had invoiced for non-eligible expenditure; the details were uncovered following the checking of documents;

17. Regrets that, of the 95 projects funded using Structural Funds audited over the current funding period, 60 were affected by material errors in declared project expenditure, representing an increase in the number of irregularities over the previous year; considers that a greater number of projects should be audited so that the conclusions obtained permit the formulation of clear recommendations for improving financial management;

19. Notes that, as far as pre-accession funds are concerned, the financial impact decreased from EUR 26,5 million in 2005 to EUR 12,3 million in 2006; the most frequent errors were invoicing for non-eligible expenditure and failure to comply with contractual or regulatory conditions; EUR 11 million has been recovered since the funds were introduced, but EUR 14 million still remains to be recovered;

23. Considers it wholly unacceptable that for many years Germany and Spain have not been forwarding information to the Commission, in electronic form, on irregularities concerning agricultural expenditure; notes, furthermore, that these two countries are responsible for 38 % (EUR 33,2 million) of the irregularities and that Germany is no longer providing details of the individuals and companies involved, despite an obligation to do so; consequently, urges the Commission to start infringement procedures against these two Member States and to withhold 10 % of agricultural payments pending the procedure; calls on the chairman of the Committee on Budgetary Control to send a letter to the Permanent Representations concerned requesting an explanation;

27. Notes that, concerning structural actions, 84% of all irregularities were recorded in Italy (2006: EUR 228,2 million), Spain (2006: EUR 85,7 million), the United Kingdom (2006: EUR 59,8 million), Portugal (2006: EUR 37,2 million) and Germany (2006: EUR 27,2 million); notes, furthermore, that neither Germany nor Spain uses the electronic module of the Anti-Fraud Information System and that Germany does not send data on the individuals and companies involved; calls on the chairman of the Committee on Budgetary Control to send a letter to the Permanent Representations concerned requesting an explanation;

32. Expresses its deepest concern over the following finding of the President of the Court of Auditors: ‘The supervisory and control systems in the Member States were generally ineffective or moderately ineffective, and the supervision of their operation by the Commission was only moderately effective’;

43. Notes that, concerning the use of pre-accession funds, Bulgaria (2006: EUR 1,7 million), Poland (2006: EUR 2,4 million), Romania (2006: EUR 5,5 million) and Slovakia (2006: EUR 1,9 million) accounted for 94% of irregularities; notes that, in this context, the Commission has stressed the need for a common interpretation and uniform application of guidelines and working documents; asks the Commission, therefore, to indicate what measures it has taken in this regard;

54. Notes that, as in previous years, the majority of cases were registered in Belgium, Germany and Italy;

61. Is extremely concerned at the financial losses caused by ‘carousel’ transactions; notes, for instance, that the German Economic Research Institute puts lost national VAT receipts for 2003 to 2005 at between EUR 17 000 million and EUR 18 000 million a year; that, extrapolating across the board, Member States estimate that they lose about 10% of their VAT receipts each year; and that one-third of these losses are attributed to cross-border ‘carousel’ transactions;

64. Is very concerned that many Member States are still reluctant to step up cooperation both between competent national services and between the Commission, including OLAF, and the national services;
You can find another summary at the EP’s Legislative Observatory – including all relevant documents and the final voted report (after next week).

4 thoughts on “Fraud and responsibility for EU funds

  1. Ralf Grahn

    When any clerical error or interpretation of stilted rules later disallowed by the Commission is labeled an “irregularity”, there is ample scope for sensationalism.

    But the report and your posting should be widely read. They make it clear that “Brussels corruption”, more often than not occurs in the member states, where the vast bulk of the EU budget is spent.

    Both agricultural and structural funds are predominantly administered indirectly, through the member states’ government bodies.

    Demands for reform – well founded or populist – should be aimed at the culprits rather than at the scapegoats.

  2. rz

    “But I assume that MEPs are too reluctant to go into a big institutional fight before an election year.”

    Especially because it is an election year they should get into this fight.

    I agree also with Giacomo, a relatively independent antifraud agency would be important on the EU Level. It could also help in new member-states where the Courts and the police are corrupt (most notably Romania) if there would be more power on the EU level to do something against fraud.

  3. Pingback: Kosmolinks #11 « Kosmopolit

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