British watchdog criticises 75% rise in European fraud

Soaring levels of fraud and mismanagement in the European Union's finances have been criticised by a parliamentary watchdog.

In a scathing report to be published today, the National Audit Office (NAO) found "persistent weaknesses" in fraud checks by EU states and warned the problem could spiral with the accession of Eastern European countries.

Some £700m worth of detected fraud was reported across the whole of the EU in 2000, up 75 per cent on the £400m found in 1999. A total of 6,587 cases were recorded, with most concerning Common Agricultural Policy spending, followed closely by customs errors and spending on structural funds.

As a result of the large gaps in finances, the European Court of Auditors has been unable for the seventh year in succession to approve the reliability of the EU's accounts without qualification.

The bulk of the cases of fraud and irregularity were identified by the UK, which notified the European Anti-Fraud Office (Olaf) of 968 cases worth £237m.

However, much of the rise was attributed to Britain introducing more robust audit systems than other countries and it was praised by Olaf and the NAO. By contrast, some EU countries, including Greece, Luxembourg and Belgium, reported not a single case of fraud or irregularity, a fact that prompted ridicule from Tory MPs last night.

The NAO discovered that EU nations do not even have an agreed definition of fraud or common reporting of irregularities in Brussels spending.

"The court has again been unable to provide positive assurance on the legality and regularity of the great majority of Community expenditure and considers that improving member-state checks is central to ensuring the correct use of Community funds," it said.

Some progress had been made thanks to Neil Kinnock, the Commission Vice-President, and his reform strategy. But amendment of financial regulations has yet to be completed.

The NAO report makes it clear that systems in the UK have been strengthened recently to comply with new regulations on the CAP and structural funds, but warns much more needs to be done.

"Minor errors and control weaknesses continue to be found and the departments and other authorities should constantly seek to improve the operation of the UK's systems," it stated. It added that the possible inclusion in the EU of 12 Eastern European countries could cause further problems, as many of their auditing standards were not fully developed.

Edward Leigh, the Tory MP and chairman of the Commons Public Accounts Select Committee, said it was "depressing" that there was no sign of progress towards obtaining a clear audit certificate for the EU's accounts.

"We really have to question how credible the figures are when some member states report no cases of fraud or irregularity at all in certain major areas," he said.

"Perhaps the Court of Auditors or Olaf should assess the consistency of member states' systems for identifying and reporting fraud and irregularity."