Europe told to put its house in order

THE European Union's financial watchdog, which won new responsibilities under the Maastricht treaty, sounded a sombre warning in its annual report yesterday. If the EU's institutions do not clean up their act, it hints that it could withhold approval of the annual budget.

The Court of Auditors' 1992 report on the European Union is not pleasant reading. Lax financial controls, poor management and inadequate assessments of programmes is the picture that emerges. Yet to many readers it will all seem rather familiar: as the report points out, similiar criticisms are made every year and they often go unanswered.

The point that the report makes, over and over again, is that errors and misjudgements do not result just from either accident or corruption: but that there are systematic failures in the EU's control of its revenue and expenditure. The Commission gets a special beating; but member states, too, are accused of letting cash wash around without any clear idea where it is going, where it came from or who has it.

'Ratification of the Maastricht treaty requires the Court of Auditors to provide the budgetary authorities with a statement of assurance as to the reliability of the accounts and the legality and regularity of the underlying operations,' says the introduction to the report.

But, it continues: 'Examples of insufficient checking by the Commission of legality and regularity aspects of transactions are to be found throughout this report.' Consequently, 'problems of this type will certainly have a significant bearing on the court's conclusions, when the moment arrives for it to draw up the statement of assurance'.

The EU budget is tiny as a proportion of the European economy, but huge as a sum of money. Total revenues in 1992 were about 61bn ecu ( pounds 47bn), of which Britain supplied about E7.4bn, or 12 per cent.

Of this, the court estimates E115m was wrongly spent, and E47m that should have been received was not. But it underlines that this is probably a very conservative estimate. 'Much larger sums' could be saved if management was improved, it adds.

Fraud in the EU budget gets more attention than simple mismanagement. But even here the court claims incompetence. 'In two cases, although the national authorities had brought fraud to the attention of the Commission, steps to recover Community funds had not been taken,' it says.

The Court of Auditors has been around since 1975 but has started to flex its muscles in the last few years. The Maastricht treaty gives it a new legal position and an enhanced role; it is clearly trying to use them to improve its status.

Critically, the court feels - and has felt for some time - that it is being ignored or sidelined. 'Many errors and weaknesses mentioned in this report, which concern questions of legality and regularity as well as sound financial management, had already been brought to the attention of the Commission, the Council and the Parliament more than two years ago,' it notes, 'with little or no subsequent improvement'.