Watchdog attacks EU over 'serious errors' in €100bn annual spending

Auditors have refused to sign off the EU's €100bn (£67bn) annual spending for the 11th successive year, saying that a proper audit of the European Commission's accounts for 2005 may be impossible.

Though yesterday's report from the European Court of Auditors highlighted improvements in financial control, the document recorded "significant errors", reigniting controversy over Europe's accounts.

Four-fifths of the payments covered in the report are administered by the EU's 25 member states, not Brussels, and most goes to farmers and poorer regions.

However, the accounting watchdog also criticised the European Commission's slow progress in setting up a new accounting system introduced this year, saying that could make it impossible to audit the 2005 figures.

As the year draws to an end, the Commission has failed to provide a starting balance for its assets and liabilities on 1 January this year. The 320-page annual report of the Court of Auditors is famously complex and opaque, and lists serious errors in the accounts for 2004, rather than fraud or irregularities. However, coupled with other controversies over the accounting system in Brussels, the annual report has painted a negative picture of financial controls over the past decade.

The watchdog's work has come in for increased criticism, with critics claiming it provides countries with insufficient information on how to improve their performance.

Earlier this month, EU finance ministers agreed to study the gaps that needed to be closed in the distribution of EU funds in their countries, and backed moves to make procedures simpler to follow.

The hope is that the accounts could be approved within a few years. However, the ministers did not back calls for individual ministers to sign off their own national expenditure.

Yesterday's report said that the court was satisfied with about one-third of EU spending, as opposed to 6 per cent last year, with improvements in controls on agriculture spending which swallowed up €43.6bn. That change has been achieved with the help of the so-called Integrated Administrative and Control System (IACS), a computerised database of land and farm subsidy applications which registers animal numbers and co-ordinates checks and inspections. Some nations, notably Greece, bucked the trend of improvement.

The British member of the Court of Auditors, David Bostock, said: "We are still not able to provide any assurance on expenditure on structural funds [EU regional spending], external action [foreign aid], internal policies, nor on the more complicated areas of agricultural spending - such as export refunds and rural development - that are not covered by IACS."

Hubert Weber, president of the court, added: "We need to look at why mistakes happen in the first place and do something about it. The vast majority of the payments budget was again materially affected by errors of legality and regularity."

The document also criticised the EU's internal fraud-busting agency, Olaf, arguing that it should spend more of its energy on conducting investigations, rather than recovering cash. The court called for an urgent review of the fraught relationship between Olaf and its supervisory committee. And it put stress on the Commission's failure to produce an opening balance for the new accounting system it has introduced for 2005. "Accurate opening balances are a precondition for establishing the financial statements for the year 2005 which show a true and fair view," it said.

A spokesman for the Commission said that the opening balance would be identified "very soon", and well ahead of a legal deadline for 2006.Siim Kallas, the Commission member in charge of administration, said improvements required "the co-operation of national and regional administrations''.

Discrepancies in the accounts

* GREECE Agriculture payments: Farm unions control the input of data into the farm subsidy computer system. "None of the data in the system is secure and it can be and is modified by the farmers' unions at any time before payment," says the report. The document concludes that "irregular changes have an estimated financial impact of at least €10m".

Sheep premiums: One herd of 470 sheep claimed to be unchanged from 2002-04. The farmer had, meanwhile, claimed that 70 had been lost in 2002, 192 in 2003 and 239 in 2004 from disease and being killed by wolves. "No evidence could be produced by the farmer to justify how he restocked his herd", the document says.

SPAIN: More olive trees declared than registered in the official control system.