The 2006 consolidated accounts present fairly, in all material respects, the Communities' financial position and results for the year, except for an overstatement of the amounts recorded for accounts payable and pre-financing in the balance sheet. The Commission has made further progress with its implementation of accruals-based accounting, although some weaknesses still remain.
In 2006 the EU made payments totalling €106.6 billion.
The Court again gives an unqualified opinion on the transactions underlying EU revenue, commitments, administrative expenditure and pre-accession strategy, excluding Sapard. Furthermore, external actions' payments managed directly by Commission delegations in 2006 showed only a low incidence of error.
However, the Court again gives an adverse opinion on the legality and regularity of the majority of EU expenditure: primarily the part of agricultural spending not covered by IACS, structural policies, internal policies and a significant proportion of external actions. In these areas there is still a material level of errors found in the payments to final beneficiaries, albeit to different levels.
In addition, the Court is of the opinion that, taken as a whole, the underlying transactions of the European Development Funds, with the exception of payments authorised by the Commission's delegations in the beneficiary states, are legal and regular.
ECA President Mr Hubert Weber said at the meeting of the Committee on Budgetary Control last night: "Reasons for the errors in the underlying transactions include neglect, poor knowledge of the often complex rules and presumed attempts to defraud the EU budget. Furthermore, in the area of non-IACS expenditure in agriculture, structural policies and internal policies, checks on expenditure claims, which are mainly based on information supplied by the beneficiary, are in many cases insufficient in number and coverage, and often of inadequate quality. What is required is better management and control of Community spending in both shared and direct management areas, under the ultimate responsibility of the Commission."
For agriculture as a whole - €49.8 billion in 2006 - the Court found a marked reduction in the estimated overall level of error, although it remains just above the materiality threshold. Agricultural spending is characterised by different types of transactions, which are subject to different risks and control systems. IACS, which covers about 70% of CAP spending, is effective in limiting the risk of irregular expenditure, where properly applied. The Court notes that, while the Single Payment Scheme simplifies claim and payment procedures, it has side effects, such as the allocation of entitlements to landowners who never exercised previous agricultural activity, leading to a substantial redistribution of EU aid away from farmers to landlords. Among new beneficiaries for EU agricultural aid are railway companies, horse riding or breeding clubs and golf or leisure clubs and city councils.
For spending on structural policies - €32.4 billion in 2006 - the situation remains similar to previous years. The Court identified a material level of error, estimated to represent at least 12% of the total amount reimbursed to beneficiaries. The most frequent errors were claims for ineligible expenditure and failure to carry out tender procedures as well as a lack of evidence to support the calculation of overheads or the staff costs involved. The supervisory and control systems in the Member States were generally ineffective or moderately effective, while the Commission maintains only a moderately effective supervision of their functioning.
For internal policies directly managed by the Commission - €9.0 billion in 2006 - the Court again found a material level of error in the legality and regularity of the underlying transactions, mainly due to reimbursements to beneficiaries who had overstated the costs for projects. The Court's audits showed that the internal control systems were only partly satisfactory.
External actions spending - €5.2 billion in 2006 - was satisfactory for the transactions managed and checked by the delegations, but not so for implementing bodies carrying out the projects in the field. Errors included claims of ineligible expenditure and breach of tendering procedures.
Within pre-accession strategy - €2.3 billion in 2006 - the Court found that payments were legal and regular overall, although significant errors were again found in the Sapard transactions audited.
The Commission has taken measures to step up recoveries and improve the protection of the financial interests of the EU over the past few years. However, due to the complexity of the shared management of these funds with the Member States, the Commission still does not have at its disposal reliable information on recoveries of undue funding - the amounts and beneficiaries involved - nor of their financial impact on the EU budget.
ECA President Hubert Weber concluded: "The Commission should lead by example by paying particular attention to devising and operating its own internal control systems effectively in the area of directly managed EU funds - internal policies and external action. This would provide a model and encouragement to Member States operating systems under shared management."
"The key to effective management of EU funds lies in efficient and reliable internal control systems at all levels of administration. I believe that the EU's citizens are entitled to expect EU funds to be properly managed and controlled across the Union."
