|Tuesday, 20 November 2007||
In a damning indictment of the Brussels institutions, the clear message of the EU’s very own Court of Auditors report is one of fraud, mismanagement and waste.
An EU whistleblower vindicated; calamitous mistakes by British ministers that threaten to land farmers with major bills; railway companies receiving CAP grants; and the tale of the pampered sheep. Dr Lee Rotherham for the Bruges Group takes the reader on a whistlestop tour of the latest European Court of Auditors Report.
Commenting, Lee Rotherham said,
“It is tragic that British ministers and senior officials this year emerge as some of the biggest culprits. Their incompetence, especially in getting to grips with EU agriculture grants, sets a feeble example.
“But the Commission must continue to shoulder the blame for a system that clearly remains endemic with corruption, waste and fraud.”
THE EUROPEAN COMMISSION SHOULD NOT PASS THE BUCK
The Court reminds readers that the Commission cannot pass the buck about EU fraud: it is ultimately the Commission’s responsibility. “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).” (p. 13)
COMMISSION MONEY IT HANDED OVER IS HUNDREDS OF MIILIONS OUT
“The Court’s audit has identified errors in amounts registered in the accounting system as invoices/cost statements and pre-financing which have the effect of overstating the accounts payable by some 201 million euros and the total amount of long and short term pre-financing by some 656 million euros.” (p.14).
This means the Commission was set to pay out more than it should have, due to, “weaknesses in the accounting systems of certain institutions and Directorates-General of the Commission” (p. 15) jeopardise spending, especially on salaries/benefits and cut-off times for projects. A number of early payments were quite simply recorded for the wrong amount (p.22). Reading between the lines (p.23) it appears that this was spotted but swept under the carpet, not least in the Commission’s assessment of who owes what.
The Commission was owed around 6.2 billion euro (pp.24-5) in 2005.
BIG RISKS IN NEW ACCESSION COUNTRIES
“significant risks still exist at the level of the implementing organisations in the newly acceded and candidate countries for all programmes and instruments.” (p.15)
Court notices some key improvements in some areas, but “structural measures and internal policies show that complicated rules or unclear eligibility criteria or complex legal requirements have a considerable impact on the legality and regularity of the underlying transactions. In these areas, which cover a significant part of the budget, checks on expenditure claims, which are mainly based on the information supplied by the beneficiary are, in many cases, insufficient in number and coverage and often of inadequate quality.” (p.10).
In other words, the CAP is still open to massive fraud.
SINGLE PAYMENT SCHEME
28.9% of payments checked contained errors (p.99). The situation is as ever bad in Greece:
“For 2006 the Court has confirmed continuing failure to implement key controls, namely: claims handling, inspection procedures, animal database integrity and the Land Parcel Identification System. Some 850 million euro per year is paid to farmers under these unsatisfactory control conditions. For the period 1996-2005 the Commission has imposed corrections totalling 479 million euro, equivalent to some 6% of the expenditure declared.” (p.100)
The Greek government has been breaking the rules over the payment schemes for sultanas and currants to allow farmers to get the subsidy against the rules. The total available is â‚¬115m p.a. ‘” perhaps â‚¬40 million is going awry every year.
Grants are also not going to the right people;
“the SPS has led to a substantial increase in the number of hectares in respect of which direct aid is paid and beneficiaries. The Court has also noted among them railway companies (England), horse riding/breeding clubs (Germany and Sweden) and golf/ leisure clubs and city councils (Denmark and England).” (p.103)
The Auditors believe this is “inappropriate” (p.113).
Some examples of UK fraud in this scheme are given on pp.103-4, including one case where two farmers teamed up to switch land between them to qualify for the redistributing grant. The land in question that was being ‘consolidated’ was up in the Scottish Highlands, while the farmer was based in England. Each free range sheep had five hectares of its own to graze on. In another case, a farmer leased his holding to his son, who qualified as a new farmer and the father received transfer payments. Similar examples are given in Scotland and NI.
There is an astonishing side effect of the cattle cull, thanks to the Government’s way of running the grant maths which are being based on annual expenditure rather than on what money was being spent. “In the United Kingdom a 10% increase in income was considered sufficient evidence of an investment. Paradoxically by increasing the number of cattle slaughtered during 2002 (i.e. destocking) farmers could meet this investment criterion. Consequently there was a general run on cattle premiums.” (p.104)
The Court tested 177 interim payments, and found only 31% free from error (p.150). Monitoring of payments in Scotland and Merseyside were “ineffective” in their control systems” (p.153) and predominantly “unsatisfactory”.
The Commission frequently fails to pay organizations within its own deadlines (p.165). 26 out of 150 projects included erroneous claims. Entertainingly, “Similarly to previous years, the Court found that beneficiaries are often unable to substantiate personnel costs claimed in their cost statements.”
The in-house auditors had failed to do their job, hinting at incompetence or collusion ‘” “In nine out of the 15 cases examined by the Court, the certifying auditor had issued an unqualified opinion whereas the Court identified errors with significant financial impact on the cost statements or systems not in line with requirements. In four of the nine cases, the personnel cost accounting systems of the beneficiaries did not comply with contractual provisions. In one of these cases, personnel costs were overstated by more than 50%. In another two of these cases, the beneficiary used a cost calculation method which was not in line with the contractual provisions.” (p.167)
One eighth of the value of the education and culture contracts audited was overpaid (p.172) ‘” the overall average was a 4.9% rate of wrongful payments, an increase on the previous year. Overall here, the only ‘satisfactory’ rating the Commission gets is how they’ve written the rules booklet (p.175), and then only on one part of the process.
In 9 of 11 projects audited, on the spot, procedures were not followed (p.185). In 3, money was spent ineligibly; in 4, receipts and such like were not kept.
Significant errors were found in the SAPARD programme. “In particular, a project audited in Romania was found to have been ineligible for EU financing for failure to adhere to the Commission’s prescribed procurement rules and procedures. For certain projects, the checks actually carried out by the authorities during the on-the-spot visits were not clearly evidenced or they were not appropriate even leading to a payment for an investment that was not completely finalized.” (p.203) ‘” i.e. money was paid without the product being delivered.
MEP allowances in 2006 ran to â‚¬132 million (p. 217).
MEPs were supposed to start showing receipts in 2005. The deadline has been adjusted by the MEPs several times (with receipts still having to be shown supposedly from 2005!) and as of 1 May 2007 the requir
ement was still in the freezer.
“The Court notes, therefore, that the Bureau has not ensured that the rules requiring the submission of adequate supporting documentation have been implemented effectively. As the major part of the amounts paid for MEPs assistance allowance have not been subsequently justified by appropriate supporting documents of the expenses incurred on behalf of the MEPs, the Court considers that there is not sufficient documentation to demonstrate that the MEPs have actually employed or engaged the services of one or more assistants and that the duties or services mentioned in the contracts signed by the MEPs have been really carried out.”
In other words, MEPs have repeatedly dragged their heels over a system that allows fraud in their own house. Admin issues have not been put out to tender or wider investigation, despite increases in buying and renting property.
With respect to the Committee of the Regions, the Auditors comment in a manner that endorses the claims made by a whistleblower ‘” Robert McCoy – who was their former head auditor (p.220):
.”In various cases, travel expenditure was refunded on the basis of hand-written travel agency invoices always showing the same amount. In the context of an ex post verification procedure the Committee’s administration found that this amount was on average 83% higher than the price charged by the airline for the ticket used. There was no evidence of the actual administrative cost invoiced for the purchase. The Committee’s administration carried out a broad investigation into the matter, which was completed in July 2007. In the Court’s opinion the results of this investigation do not demonstrate that the amounts paid for administrative costs were justified.”
This was exacerbated by inadequate attendance registers (p.224). Incredibly, the Court of Auditors finally now openly confirms (p.239) that members had bought standard tickets from the airline that were treated as flexible but had received invoices for the full flexible fares, allowing them to pocket the difference when reclaiming the full costs.
Payments continued to be made for massive amounts of leave not taken; an unofficial overtime system (p.223).
â‚¬231 million went on the European Schools for the families of members of staff (no fraud, but clearly to the outsider a question of cost effectiveness).
DG EDUCATION AND CULTURE
The paper trail was so bad that an accounting task force with an outside accountant had to be brought in to clear up invoices and claims. (p.21)
DG OFF-BALANCE BOOK LIABILITIES
i.e. for land leases, and even staff salaries for people who passed their exam for one grade but got given a job with a lesser salary (p.22)
BLINKERED COMMISSION LEADERS
“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.” (p. 43)
INTEGRATED INTERNAL CONTROL NETWORK
This is the action plan to secure a robust and common methodology to run programmes across the disjointed Commission departments. Of the 41 objectives and elements, the Commission claims to have achieved 14 of them. But the Auditors say that in fact all but one even of these are not yet completed. (pp.49+)
money was withheld from the UK and Spain over “weaknesses in their management and control system”; this may refer to Cohesion Fund money, i.e. John Prescott’s department, or possibly a reference to Margaret Beckett (p.66). This, according to the Commission’s commentary (p.75), means that the UK missed out on receiving EU money back that was available, and remained uncommitted.
The Court found “Late or inaccurate entries, omissions and erroneous cancellations were found in a number of Member States” (p.82) including the UK for their Own Resources book keeping.
The UK random checking procedure on imports was held to be very low (and might from our perspective be interpreted as yet another governmental IT problem) (p.84).
Also, the UK might yet be lumbered with recouping tens of millions of pounds in grants from errors the Government made (p.102). Returning to the SPS (see above);
“The ten months rule 5.20. Community legislation requires that land declared for SPS must be at the claimants’ disposal for a minimum period of 10 months each year. Contrary to this, in the United Kingdom entitlements were allocated under SPS and aid was paid to landlords, not engaged in farming, who let out their land for most of the year and who do not therefore meet the requirement. In Northern Ireland, for example, more than 176 000 entitlements (worth 13,8 million euro) were allocated to such landlords.
“5.21. The United Kingdom authorities consider that, depending on the terms of the letting agreement, landlords may qualify for SPS and/or rural development aid for land let to and farmed by the lessee. According to EU law however, only the farmer, i.e. the person disposing of the land and exercising an agricultural activity on the land is entitled to SPS payments and rural development aid.”
The Welsh and Scottish assemblies may also soon have to face the prospect of bills arising from another discovery, that farmers were allowed (encouraged?) to consolidate grants, and this may hit small and hill farmers worst. In NI and England, it may be that small farmers missed out on grants due to them which their landlords claimed instead (p.103).
In Wales alone, the Court found 4552 illegal entitlements. Astonishingly, it also discovered, “The same parcel can be claimed by different farmers under different EU aid schemes.” (p.130)
OTHER COUNTRIES’ FAILINGS
Hungary carried out agri-environment spot checks after rather than during its harvest. (p.108)
Something we have highlighted before shows no sign of movement:
“the Commission is not yet in a position to finalize the ‘Jordan/Iraq’ case relating to false proofs of arrivals of exports of meat and poultry involving 35 million euros of alleged irregular payments, since legal proceedings, including a preliminary ruling procedure before the European Court of Justice are still pending in June 2007″ (p.115).
We know that this has been investigated by OLAF; and we know that this relates to smuggling during the Saddam era. What hasn’t been released is who was involved, and if there was government collusion.
CLICK ON THE LINK BELOW TO READ THE FULL EUROPEAN COURT OF AUDITORS REPORT: