Reimbursement spending was most affected by error
The correct calculation of payments to recipients of funding often depends on information provided by the recipients themselves. This is especially significant in the area of reimbursement activities.
EU spending by programme expenditure type includes the following errors:
- For reimbursement expenditure, the estimated level of error is 5.5 % (2013: 5.6 %). Typical errors in this area include ineligible costs contained in the cost claims, ineligible projects, activities and beneficiaries, and serious infringement of public procurement rules.
- For entitlement programmes, the estimated level of error is 2.7 % (2013: 3.0 %), with typical errors including over‑declarations by farmers of agricultural areas and administrative errors affecting payments to farmers.
Diagram 8, based on our audit testing of EU spending over the last 2 years, shows our assessment of the different risk profiles by transaction type as well by estimated levels of error. It is based both on elements of professional judgement (assessment of the impact of systems and risks related to transaction type) and empirical elements (levels of error over a 2‑year period).
Diagram 8The relationship between transaction type, risk and estimated level of error in EU transactions (2013-14)
Explanation:
• Payment streams are grouped according to their nature.
• The colour of the circles indicates whether expenditure is based on reimbursement or entitlement.
• The size of the circles represents their weight in overall spending.
• The position of the circles along the 45 degree line indicates relative levels of estimated errors.
• Reimbursements for Global Europe include multi-donor projects which in practice may have many of the attributes of entitlement spending and are affected by lower levels of error.
• The Commission establishes that recipients are entitled to budget support prior to payment.
Corrective action significantly reduced the estimated level of error
The Member States and the Commission apply corrective measures in cases of irregular expenditure and when errors in payments had not been detected earlier in the process. The mechanisms applied to make and record corrective action are complex. We seek to take account of these measures in the results of our audits when they are made prior to payment or before our examination. We check the application of the corrections (for example, recoveries from beneficiaries and corrections at project level) and adjust the quantification of error whenever this is appropriate. While, we take note of corrections made after notification of our audits, we do not assume that a corrective action stimulated by our work is representative of the population as a whole.
In 2014, if such corrective measures had not been applied to the payments audited by us, our overall estimated level of error would have been 5.5 % rather than 4.4 %.
However, we also found that for some transactions affected by error, if the Commission, authorities in the Member States or independent auditors had made use of all information available to them, they could have prevented, or detected and corrected the errors before the related errors were made.
Scope for further improvement in the Commission’s assessment of risk and impact of corrective actions
Each Commission directorate‑general produces an annual activity report. The Commission’s synthesis report incorporates a summary of this information and a statement whereby it takes overall political responsibility for its management of the EU budget.
We found the information in the synthesis report for 2014 to be better than in previous years. The accounts now show which corrections had been already made before payments were recorded. There is scope, however, for further information to be given and for ensuring a consistent and accurate assessment and presentation of risk and impact of corrective actions.
High level of potential claims and payments from 2007-2013 programming period
The budget for payments in 2014 was the second highest ever. As in 2013, the final level of payments (€142.5 billion) was approximately 5 % higher than the initial forecast in the MFF (€135.9 billion). This was realised through seven amending budgets and included the activation of the ‘contingency margin’ — a last‑resort instrument to react to unforeseen circumstances.
The ‘economic result’ for 2014 was a deficit: liabilities grew faster than assets.
The level of commitments in 2014 was well within the overall limit (76.6 % of amount available). This reflected the level of progress in the approval of new programmes by the Commission in the first year of the MFF 2014-2020.
What are commitments and payments?
The EU budget has two components: commitments (representing amounts to be paid in the current or future years) and payments (covering payments of funds in the current year). Payments can only be made against a valid commitment. The annual ceilings for commitments and payments are laid down in the multiannual financial frameworks agreed by the Council and Parliament.
ESI FUNDS: Payments and commitments
Backlogs in the absorption of multiannual funds are significant, and may pose a significant challenge to some Member States.
41.86% of the EU budget from 2014 - 2020 will be allocated to ESI funds. It comprises major funds spent through shared management: the European Social Fund (ESF), the European Regional Development Fund (ERDF), the Cohesion Fund (CF), the European Agricultural Fund for Rural Development (EAFRD) and the European Maritime and Fisheries Fund (EMFF).
Alternative content for the map
EU Average| Outstanding commitments |
22 % |
|---|
| Payments (billion euro) |
10,673 |
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| Commitments (billion euro) |
13,897 |
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| Countries above EU average |
|
|---|
| Countries below EU average |
|
|---|
We recommend that the Commission considers, in its budgetary and financial management, the capacity constraints in certain Member States.
The accumulated outstanding budget commitments on expenditure of a multiannual nature remain at a very high level. Most of these commitments relate to the previous MFF covering 2007-2013. We also found excessive cash balances in financial instruments.
We recommend that the Commission considers measures to reduce outstanding commitments, including faster closure of the 2007-2013 programmes and a reduction of cash held by fiduciaries. We also recommend that a longer term perspective is adopted, including forecasts covering budgetary ceilings, payment needs, capacity constraints and potential de-commitments.
Want to know more? Full information on the main findings on budgetary and financial management can be found in Chapter 2 of the 2014 annual report on the EU budget.
Reporting on performance is still weak
EU money should be spent in line with the principles of sound financial management: economy, efficiency and effectiveness. Achieving good performance involves inputs (financial, human, material, organisational or regulatory means needed for the implementation of the programme), outputs (the deliverables of the programme), results (the immediate effects of the programme on direct addressees or recipients) and impacts (long‑term changes in society that are, at least partly, attributable to the EU’s action). We regularly assess these attributes through our performance audits.
Europe 2020 is the EU’s 10-year jobs and growth strategy. It provides a focus for both EU and national spending. The strategy was launched in 2010 to create conditions for ‘smart, sustainable and inclusive growth’.
Challenging framework for monitoring and reporting on Europe 2020
Beneath the political aspirations of Europe 2020, there is a complex architecture comprising five headline targets, seven flagship initiatives and, for the European Structural and Investment (ESI) funds, 11 thematic objectives. We found, however, these various tiers are not, either individually or as a whole, designed to translate the political aspirations of Europe 2020 into useful operational objectives.
The periods of the 10-year Europe 2020 strategy and the EU’s 7‑year budgetary cycle, known as the multiannual financial framework (MFF) are not aligned. The monitoring and reporting framework underlying the MFF was brought in line with Europe 2020 only from the 2014-2020 MFF period. The first half of the implementation of Europe 2020 has, therefore, taken place under an MFF designed for a different strategy. This limits the Commission’s ability to monitor the contribution of the EU budget to Europe 2020 during the 2007-2013 MFF period.