The excellent Full Fact website reports [*1]

The European Court of Auditors (ECA), an EU body set up to examine the accounts of the Union, signed off on the 2014 accounts as reliable—something it’s done for every set of figures since 2007. But it did find that payments made were materially affected by error.

… It might sound counterintuitive that accounts can be signed off on as reliable while there are irregular payments being made. But the two can comfortably go hand in hand.

When the ECA signs off on the accounts, it’s saying that they were prepared according to international standards, and present a “true and fair” view of the EU’s finances.

The ECA is also asked whether the EU received income and made payments in line with the relevant rules and regulations. While income passed with flying colours, spending didn’t.

The EU budget contained €142.5 billion of spending in 2014. In every area of the budget (apart from administration), and overall, enough spending fell outside of the proper procedures to pass the 2% ‘materiality threshold’—the point at which the auditors view these ‘errors’ as significant.

Overall, 4.4% of the EU’s spending didn’t follow the rules and accordingly shouldn’t have been paid out.

This can cover quite a wide range of situations and isn’t synonymous with waste or fraud, according to the ECA.

For instance, one way to run afoul of the rules is to award an EU-funded contract directly without holding a proper bidding process. While generally this is a bad idea, it’s not always the case that another firm would have been able to put in a lower bid.

However, there is no reason to suppose that the lowest bid is the best:  it could have submitted by a bunch of incompetents as anyone trying to find a trader to do their garden is able to attest.

One also does not know how much pressure was put on the ECA to sign off as reliable that which wasn’t reliable.  And there is the matter of the years up to 2007 to account for when the auditors didn’t sign off the accounts.

Further, an audit of the accounts isn’t capable of finding, and isn’t intended to find, instances of mismanagement of finances, poor financial decisions, let alone well-disguised fraud.  And, since we are dealing with a bunch of politicians, the idea that some of them behave fraudulently isn’t exactly ‘off the radar’.

The answer to the question, ‘does the EU manage its finances well’, is almost certainly, No.

Campaign comment

The answer to the point raised by leave campaigners that the EU’s ‘books’ have never (or not in a long while) been signed off is simply wrong.  They have been signed off, albeit with caveats, since 2007, just as many corporates’ accounts have been signed off with caveats.  People who persist in saying this are either:

• ignorant—if I know this basic stuff, they should
• stupid—they’ve been told this stuff but they don’t understand it
• liars.

In all cases, such people should ‘consider their position’, ie stop it, and preferably resign if the are parliamentarians (after all if they are willing to comment on this subject, knowing they are ignorant/stupid/liars, on what other subjects are they willing to dissemble?  Presumably all of them).

[*1]  Did auditors sign off on the EU budget?  (Sam Ashworth-Hayes, Full fact website, 10 nov 2015)

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© Jeremy Marchant 2016 . expaned 27 may 2016 .  image: Free images