Press Releases

£43.4 billion of European taxpayers' spending open to fraud

13 November 2007

Key points:

The EU's accountants have today refused to sign off the EU's accounts for the 13th year in a row. The European Court of Auditors' (ECA) report for 2006 issued a “qualified” opinion on EU expenditure, saying that "errors of legality and regularity still persist in the majority of EU expenditure due to weaknesses in internal control systems both at the Commission and in Member States."

Open Europe has calculated that the areas of expenditure on which the Court has given an adverse opinion account for 57% of the overall budget - or £43.4 billion. This means that of the £10.5 billion given by UK taxpayers to the EU each year, nearly £6 billion is open to fraud.

In its report the European Court of Auditors dismissed the European Commission's attempt to blame national government's for the majority of EU fraud saying, "Regardless of the method of implementation applied, the Commission bears the ultimate responsibility for the legality and regularity of the transactions underlying the accounts of the European Communities (Article 274 of the Treaty)"

Open Europe's Hugo Robinson said, "Sadly, today's announcement comes as no surprise. After 13 years the EU still hasn’t got its own house in order when it comes to sound bookkeeping."

"The EU Commission constantly talks a good game on reform, but nothing seems to happen. Until hugely expensive and wasteful policies such as the CAP and structural funds are brought back under national control or scrapped altogether we are unlikely to see any improvement."

"The new version of the EU Constitution, like the original, will not solve these problems. Taxpayers deserve better than this, and need to be given the chance to force real reform through a referendum."

Background briefing- key areas open to abuse:

Agriculture: The EU spent 49.8 billion euros funding agriculture in 2006, 15 billion euros of which was not subject to proper checks. The Court found that "one quarter of the payments tested at final beneficiary level revealed overpayments".

Nearly a quarter of olive growers in Italy, Spain and Greece had declared at least 5% more olive trees than they owned, in some cases netting "significant" extra EU cash.

Greece came in for particular criticism as many of the much needed financial controls have still not been put in place - meaning that 850 million euros per year is paid to Greek farmers under "unsatisfactory control conditions". They also found that some 50% of Greek sultana producers should not have qualified for the subsidies they were receiving.

There were extremely high levels of error in the rural development budget - aimed at funding environmental developments for farmers. Of the eight cases the ECA audited, in seven of them the farmers had not met the necessary commitments to qualify for the grants.

It also found that the recent changes to payments for farmers - from subsidising production to giving subsidies based on the amount of land owned - have "side effects, such as the allocation of entitlements to landowners who never exercised previous agricultural activity, leading to a substantial redistribution of EU aid away from farmers to landlords. Among new beneficiaries for EU agricultural aid are railway companies, horse riding or breeding clubs and golf or leisure clubs and city councils."

The ECA criticised the way in which the UK implemented the reforms, finding that landowners who were renting out their lands were able to claim subsidies despite the fact they were not actually farming the land: "In Northern Ireland, for example, more than 176 000 entitlements (worth 13,8 million euro) were allocated to such landlords". It also found an instance of two farmers in Scotland claiming subsidies worth hundreds of thousands of pounds off the same piece of land. It also found that farmers were buying very poor quality land but were still receiving the average regional subsidy price - effectively buying land to claim subsidies.

It criticised the Commission's oversight of national agencies that make the payments to farmers, such as the Rural Payments Agency in the UK. For example, it found that the last time the EU Commission updated its records on how much money member states owed the EU budget in fines and corrections for inflated claims was 1998. The report stated, "These involve significant sums of money being repaid to the Community budget... It should be emphasised that these recoveries to the Community budget are funded by national taxpayers, rather than the beneficiaries who have received Community funds irregularly."

Structural funds: Structural funding accounted for €32.4 billion of the EU's 2006 budget. The ECA noticed little improvement here, stating that "the situation remains similar to previous years". Of the projects it audited only 31% "were found to be free from error". It warned that there was a "high risk" that the project costs were "overstated" and that there were large numbers of claims for "ineligible expenditure." The report states that there was generally "a lack of evidence to support the calculation of overheads or the staff costs involved." As well as criticising the Member States' control of these funds it also criticised the EU Commission's supervision of how the funding was spent. It found that at least 4 billion euros of the money that the EU Commission handed out "should not have been".

Internal EU policies: These are areas of policy and spending directly - like research and cultural spending - which are controlled by the Commission. The ECA found that there was still "a material level of error in the legality and regularity of the underlying transactions, mainly due to reimbursements to beneficiaries who had overstated the costs for projects."

The ECA also found significant problems in verifying the accounts of the EU's external action and pre-accession aid budgets including "claims of ineligible expenditure and breach of tendering procedures". For example, in Bulgaria the Commission approved a 19.6 million euro payment for a project despite the fact that the Sapard agency had not performed the required checks before its approval, thus relying on unverified information.

The long line of examples of EU fraud:

In a report earlier this year the ECA found that over half of EU funded projects in Romania and Bulgaria “are not operating as intended”. Failed projects include a virtually unused asylum-seekers’ centre costing £1 million, a £2 million bridge which cannot be used because there is no access road at one end, and £200,000 border-control police boats rendered useless by cold weather. (Express, 31.08.07)

Another ECA report found that 4 million pounds was given to a children’s cancer centre in Avellino in 1992, which has yet to install a single bed. Work began on another hospital near Naples in 1965 and after decades of delay a decision was taken to finish it in 2001. Inspectors later found out that the mafia was using it as a weapons store. (Telegraph, 5.09.06)

In the Liberec region in the Czech Republic, the Mayor forged documents and altered a building permit he needed for a project worth some 2 million euros, which he received from the structural funds. Once caught this summer, he had already spent everything (Czech News Agency, August 10, 2007).

The EU paid out some 50 million euros during the period 2001-2004 to farmers in southern Italy, for buying and selling surpluses of citrus under the EU’s Common Agricultural Policy. However, neither the farmers, nor the fruit nor the buyers actually existed (Svenska Dagbladet, 23 April 2007).

ECA attacks Commission spin

The EU Commission argues that the responsibility for the fraud lies at the national level, not with itself, as 78 per cent of EU funds are distributed by member states in agricultural payments and structural funds. While poor administration at the national level is an issue, the major problems are systemic.

The ECA criticises the Commission for attempting to spin its findings and attempting to blame the member states. It reminds the Commission of its treaty obligations to uphold sound financial management:

“Regardless of the method of implementation applied, the Commission bears the ultimate responsibility for the legality and regularity of the transactions underlying the accounts of the European Communities (Article 274 of the Treaty).”

The Court also criticises the Commission for trying to put a positive spin on the report, saying:

"in significant parts of the EU budget, the Directors-General give a more positive account of the legality and regularity of EU spending than is consistent with the Court’s audit."