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The European Court of Auditors’ 2010 Annual Report: EU accounts reliable, but payments still affected by material error

The ECA concludes that the 2010 accounts present fairly the financial position of the European Union and the results of its operations and its cash flows for the year. However, the payments underlying these accounts were still affected by material error, with an estimated error rate of 3.7 % for the €122.2 billion of EU spending. The error rate is not an estimate of fraud but reflects the ECA’s estimation of the degree of non-compliance with the rules governing the spending, such as breaches of public procurement rules, ineligible or incorrect calculation of costs claimed to EU co-financed projects, or over-declaration of land by farmers. The control systems tested across the EU budget were still only partially effective in ensuring the regularity of payments.

Cohesion, energy and transport was the most error-prone EU area of EU expenditure, with an estimated error rate of 7.7%. This is higher than in 2009 and also explains the small increase in the estimated error rate for the budget as a whole. Member States have their role to play as they were again only partially effective in preventing or detecting and correcting errors. In addition, there continues to be significant risks with the interim and final payments for External aid, development and enlargement and Research and other internal policies.

The error rate has remained relatively stable for the majority of EU spending when compared with 2009. For Agriculture and natural resources the estimated error rate was 2.3%. The direct payments covered by the Integrated Administrative Control System, which accounted for almost €40 billion of total spending of €56.8 billion in this area, were found to be free from material error.

As well as being legal and regular, EU spending should also be effective. To that effect, the Commission and the Member States should pay greater attention to setting objectives that are SMART – specific, measurable, achievable, relevant and timed – when planning EU spending programmes as well as managing the risks to implementation. Good quality performance reporting is key to ensuring the accountability of those responsible for managing the EU budget.

ECA President Vítor Caldeira told the EP Committee on Budgetary Control (CONT) today: The 2010 Annual Report confirms the main message of previous years. Despite many years of incremental improvements in systems, there remain significant risks to the regularity of payments that can only be fully addressed by reforming legal frameworks and redesigning control systems. The proposals for sectoral legislation governing spending after 2014 provide an opportunity to do that. But as I stressed last year, reforms should focus on improving the overall quality of spending. That means improving the management and mitigation of the risks to regularity and performance while reducing the costs of control.

For the first time the ECA is publishing estimated error rates for both the EU budget as a whole and for groups of policy areas. The error rates are calculated by extrapolating the quantifiable errors found in the samples of transactions audited. The ECA compares the estimated error rate with a materiality limit of 2% to determine – together with other evidence – whether the error is material.

Today’s presentation of the 2010 Annual Report to the EP Committee on Budgetary Control in Brussels will launch the discharge procedure on the implementation of the EU budget for the 2010 financial year. ECA President Vítor Caldeira will also present the 2010 Annual Report to the European Parliament in plenary on Tuesday 15 November in Strasbourg and at the end of November to the ECOFIN Council.

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