A pounds 6bn journalistic fraud

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THE European Union loses pounds 6bn a year through fraud. It was in the papers, so it must be true, mustn't it? But it isn't. The figure has no official basis whatever: it was pulled from thin air.

In the week when the EU's financial watchdog released its annual report, while the UK Government struggled to persuade MPs to raise Britain's contributions to Eurofunds, the figure became an inflammatory component in an important debate. But despite newspaper reports that attribute the figure to the EU Court of Auditors, the number is a five-year-old back-of-an-envelope guess. The court refuses to give any public estimate. Newspaper headlines demand one.

Since at least the mid-1980s, journalists have used a rule-of-thumb calculation that fraud is 10 per cent of the budget. The pounds 6bn figure seems first to have emerged in 1989. It has not changed since then.

So how much does the EU lose to fraud and mismanagement each year? Less than pounds 6bn, or more? There are good and bad reasons why there is no reliable figure. By definition, fraud means that someone has obtained cash unlawfully through misrepresentation. Until detected, it remains unknown. Obviously, not all fraud is detected.

So nobody knows how much the EU loses through fraud, but the educated guess of those in the EU's anti-fraud unit is that the number is as little as a tenth of the figure usually quoted, in other words about pounds 600m. In 1993, detected farm fraud amounted to about pounds 200m, for instance.

But the reason why the pounds 6bn emerged - and became an issue - tells a lot about how the EU regards fraud. Until quite recently, the Commission - the authority charged with planning and implementing EU policy - devoted little time or attention to the issue. Every time the subject came up, they would be pressed for a total figure, even if it was an estimate.

But the response was simply that it was not possible to say. As with other such cases where information was lacking, the press promptly substituted a number of their own, and it has become lodged in the collective memory.

The wobbly nature of the fraud figures is repeated throughout the debate over new cash for the EU budget which is riddled with dodgy numbers and statistical tricks. The Government says that the increase in EU spending will add about pounds 250m to Britain's net contribution by the end of the decade - two days' worth of local authority spending, or about pounds 10 per head for Britain's taxpayers. The Eurosceptics insist it is far higher than that, referring to an increase of billions of pounds. The lack of hard numbers is one of the biggest obstacles to understanding what is going on.

Another problem is that there is a difference between fraud and financial irregularity. In its annual report the Court focuses on the second, exposing areas where it believes the Commission has broken the financial rules, from vanished millions to missing taxi receipts. The Commission itself strongly contests the validity of some of the cases thrown up by the Court of Auditors. Some of the allegations made by the Court in earlier drafts of its report have been withdrawn after Commission complaints.

Underlying all this is the question of whose money it is. The cash is raised from national governments, but is the ``own resource'' of the EU. In most people's minds that means the Commission, the bureaucracy led by Jacques Delors that personifies the EU, with its large staff and its ugly buildings in Brussels.

But 80 per cent of the cash is finally spent by member state governments in their own countries. What is their incentive to clamp down on dubious practices by their own countrymen? If they identify fraud, they have to give the money back - a ready disincentive to tough scrutiny. The only realistic long-term answer to EU fraud is an EU fraud police force, with supra-national powers. Would the Euro-sceptics support that?