Luxembourg, 10 October 2024
- Rate of error in EU budget spending is estimated at 5.6 % for 2023
- COVID recovery mechanism is affected by system weaknesses and irregular payments
- Growing debt places an increasing burden on EU finances
As in previous years, the estimated level of error in spending from the EU budget has increased, according to the European Court of Auditors’ annual report published today. The auditors also warn of the growing financial risks facing the EU budget due to a record amount of debt, Russia’s war of aggression against Ukraine, and high inflation.
Although the auditors conclude that the EU’s accounts for the 2023 financial year give a true and fair view, and that revenue transactions can be considered error-free, they are concerned about the increase in the level of error to 5.6 % (2022: 4.2 %; 2021: 3.0 %) affecting the €191.2 billion in spending from the EU budget.
In addition, irregularities affect a part of the €48.0 billion spent under the Recovery and Resilience Facility (RRF), the main pillar of the EU’s pandemic recovery package NextGenerationEU (NGEU). The auditors found payments for which not all conditions were met, and weaknesses in the member states’ control systems.
“As we reach the midpoint of the 2021-2027 financial period, our annual report findings highlight critical challenges facing the EU budget, including high levels of irregular spending”,said ECA President Tony Murphy.“These challenges underscore the need for robust oversight and accountability structures at both the member state and EU levels in order to maintain public trust and safeguard future EU budgets”.
‘Adverse’ opinion on EU budget expenditure
As in the last four years, the auditors conclude that the estimated level of error was material and pervasive, and have thus issued an adverse opinion on the EU’s spending in 2023.
The auditors highlight that the substantial increase in the estimated error rate is largely driven by the errors found in Cohesion expenditure reaching 9.3 % (2022: 6.4 %). They refer to the time pressure on national administrations to spend money from competing EU funds as a possible reason for their difficulties in ensuring proper funding of Cohesion projects. As the projects affected by error correspond to those financed under the RRF and are often controlled by the same national bodies, the auditors point to the risk that similar types of error exist for RRF expenditure. However, under the RRF, compliance with EU and national rules is not a pre-requisite for member states being paid, and so they are not systematically checked.
‘Qualified’ opinion on RRF expenditure
2023 was the third year of implementation of the RRF, under which EU countries receive funds in exchange for achieving predefined milestones or targets. 23 grant payments were made to 17 member states in 2023.
The auditors found that around one third of these RRF grant payments did not comply with the rules and conditions. As a result, six payments were affected by material error. The auditors also identified cases of design weaknesses in milestones or targets, and persistent problems with the reliability of information that member states included in their management declarations. The auditors therefore issued a qualified opinion on RRF expenditure.
EU budget under increasing pressure
According to the auditors, the EU budget figures show that some situations require close attention. The total amount of outstanding commitments – which represent future payment obligations if they are not decommitted – reached a record high of €543.0 billion by the end of 2023 (2022: €452.8 billion). Meanwhile, EU debt jumped to €458.5 billion in 2023 (2022: €348 billion, or +32 %), mainly because of borrowing for NGEU of €268.4 billion. EU debt is now twice as high as in 2021 (when it stood at €236.7 billion). This means that the EU is now one of the largest debt issuers in Europe, even though it is unclear whether the Commission’s own resources proposal will generate sufficient revenue to repay NGEU debt. Additional costs for NGEU borrowing are estimated to range between €17 billion and €27 billion.
The auditors also point out that high inflation continues to affect the EU budget. Based on the Commission’s inflation forecast, they estimate that the EU budget could lose nearly 13 % of its purchasing power by the end of 2025. The EU budget’s total exposure, measuring the risk related to EU budget guarantees and contingent liabilities, was €298.0 billion by the end of 2023 (up from €248.3 billion in 2022).
The EU’s financial assistance to Ukraine more than doubled in 2023 (from €16.0 billion to €33.7 billion). The auditors warn that transferring the risks of possible defaulted repayments to the future could put pressure on the EU budget. Furthermore, they highlight the considerable risks associated with the Ukraine facility set up in 2024 to provide financial support for an additional amount of up to €33 billion in loans from 2024 to 2027, which does not require provisioning.
Background information
Each year the auditors examine EU revenue and expenditure to see whether the annual accounts are reliable and whether income and expenditure transactions comply with the rules. They measure the estimated level of error against a threshold of 2 %, this being the rate above which irregular spending is considered to be material. The estimated level of error does not refer to fraud, inefficiency, or waste: it is an estimate of the amount of money that was not used in compliance with EU and national rules. However, in the course of their work the auditors also identified 20 cases of suspected fraud which they reported to the relevant EU authorities. An ‘adverse’ opinion means that the auditors have identified widespread problems. A ‘qualified’ opinion means that problems have been identified, but are not pervasive.
Read and download the audit report
Related links
EU Commission reaction: Investing in sustainable economic growth and solidarity and safeguarding EU financial interests through our 2023 budget
Brussels, 10 October 2024
The Commission welcomes the European Court of Auditor (ECA)’s extensive work on its Annual Report on the 2023 EU budget published today and takes note of the ECA’s valuable insights as regards the regularity of the EU budget implementation.
Main achievements of the EU budget in 2023
In 2023, the EU budget continued delivering on our priorities.
Under the Recovery and Resilience Facility (RRF), the centrepiece of NextGenerationEU (NGEU), in 2023 Member States received payments for more than 700 fulfilled milestones and targets, including in relation to 22 growth-enhancing reforms in line with country-specific recommendations under the European Semester.
Along with its NGEU the 2023 EU budget invested €159 billion (38% of its total spending) in climate-related actions for the benefit of EU citizens. This prevented, for example, around 87 million tonnes of carbon dioxide from polluting our environment annually. Moreover, the introduction of NGEU Green Bonds, which raised €49 billion by the end of 2023, has further boosted climate financing and expanded the EU sustainable finance market.
Furthermore, in the current 2021-2027 budget period, by 2023, almost €15 billion were dedicated to developing high-capacity broadband and 5G networks to enhance the digital connectivity, offering citizens and businesses better access to the digital single market.
Moreover, the EU budget played a vital role in supporting Ukraine in its efforts against Russia’s war of aggression and contributed to its path towards the accession to the EU. By the end of 2023, the EU and its Member States had provided Ukraine and its people with nearly €85 billion in assistance. This included the disbursement of €18 billion in highly concessional loans as part of an unprecedented support package through the Macro-Financial Assistance Plus instrument.
Under the European Solidarity Fund (EUSF), a tangible expression of EU solidarity with populations affected by natural disasters, over €755 million was paid out in 2023 to four Member States to support recovery and reconstruction.
Finally, in 2023, the Commission dedicated €2.4 billion in humanitarian aid, including quadrupling its humanitarian aid for Palestinians effected by the ongoing hostilities in the Middle East, with over €100 million.
EU Commission’s views on ECA report on the 2023 EU budget
The Commission welcomes the decision of the ECA to give the EU annual accounts a clean bill of health, for the 17th year in a row. Like in previous years, the ECA found that the collection of the EU revenues was free from significant error.
The Commission has, however, noted the ECA’s negative opinion on the regularity of spending under the Multiannual Financial Framework (MFF) and its qualified opinion on the RRF. The Commission recalls that the estimated level of error reported by the ECA is not a measure of fraud, inefficiency, or waste – but are rather administrative irregularities which do not impact the end-result of a project and are usually recovered or corrected. At the same time, the Commission agrees that improvements are needed, and it is acting accordingly.
Furthermore, given their different respective roles as external auditor and manager of the EU budget, the two institutions may have differences in their methodologies to assess whether an error has taken place, and to estimate the financial impact of that error. In some cases, this can lead to different results. The Commission continues to stand ready to work closely with the ECA to further align audit methodologies and interpretation of rules, in full respect of both institutions’ independence and prerogatives.
For instance, the Commission agrees that improvements are needed when it comes to complex spending rules, and it is actively working on them. Both the ECA and the Commission also agree on which types of spending are most prone to spending errors, and where actions need to be taken to better protect the EU budget.
EU Commission actively working to better protect the budget from irregularities
Thanks to the hundreds of thousands of checks performed before and after payments are made by national authorities, other partners, and the Commission itself, the Commission is well-informed about the risks to the EU budget and can take precise actions to address them. The Commission aims to keep the final level of error below 2% once programmes are closed and all checks and corrections are completed. For 2023, this goal was met, with the estimated risk at programme closure projected to be just 0.9%, fully in line with previous year’s levels.
The Commission is continually enhancing its management of the EU budget. Upon a Commission’s proposal, the co-legislators agreed on revised rules for the financial management of the EU budget which entered into force in September 2024. This will ensure that EU funding is more transparent, more digital and clearly reflects the Union’s values. As errors often result from the complexity of the rules, the Commission is constantly striving for simplification and harmonization of spending requirements. In the area of Cohesion Policy funding, for example, the legal framework applicable for the 2021-2027 spending period offers a comprehensive set of simplification measures.
Furthermore, the Commission also maintains close collaboration with those implementing the EU budget, especially national authorities, and actively raises awareness among funding recipients through outreach efforts.
Lastly, the Commission will also continue to use its preventive and corrective tools, such as interrupting and suspending payments and applying financial corrections. In 2023, the Commission and Member States implemented preventive and corrective measures for an amount of €3.8 billion.
Background
The publication of the Annual Report of the ECA, and the presentation of the Integrated Financial Accountability Reporting (IFAR) package to the European Parliament, kicks off the annual ‘discharge procedure’, taking stock of the financial management and achievements of the EU budget in 2023.
The IFAR package includes five reports from the Commission that offer a comprehensive look at how the EU budget was used. These reports are crucial for ensuring transparency and accountability about the use of taxpayers’ money.
Under the discharge procedure, the European Parliament takes into consideration the IFAR package, the ECA Annual Report and any relevant ECA Special Reports, to decide whether to approve, delay, or deny the discharge on the budget.
The European Commission collaborates closely with Member States and other partners to make sure the EU budget is spent efficiently, free from fraud and irregularities, and in line with the EU’s policy goals to benefit citizens and achieve tangible results.
More information
- Integrated Financial and Accountability Reporting 2023
- Annual management and performance report 2023
- Factsheet – Delivering on results and protecting the EU budget in 2023
- Official website of the European Court of Auditors
Quote
During the Commission’s 2019-2024 term, the EU has faced a series of unprecedented crises, demanding swift and effective responses to safeguard lives and livelihoods across the Union. 2023 was yet another significant year in which the EU budget continued to tackle challenges as they emerged. At the same time, the Commission remained focused on its key priorities, developing comprehensive solutions while ensuring the EU budget was well-protected and effectively managed.
Johannes Hahn, Commissioner for Budget and Administration
Source – EU Commission
Statement by Niclas Herbst, Chair of the Committee on Budgetary Control, following the presentation of ECA Annual report
Strasbourg, 10 October 2024
Mr Niclas Herbst (EPP, Germany), Chair of the Committee on Budgetary Control, issued the following statement on the Annual report 2023 by the European Court of Auditors (ECA).
“The European Court of Auditors’ report presents a mixed assessment of the Commission’s use of funds. While cohesion policy is generally considered a success, it remains vulnerable to errors, and the combination with the COVID-19 recovery funds (RRF) is overwhelming for many member states.
The tracking of debt-financed RRF funds is insufficient, and the Court has identified several weaknesses in reporting and control mechanisms. The ECA also notes that the goals and milestones are too vaguely defined, a concern I fully share. The increasing interest burden is particularly troubling. Debt is incurred quickly, yet interest payments are already straining the current EU budget, and repayment is only set to begin in 2028. This must be considered in light of current calls for new debt.
Many funds have remained unspent. Therefore, we need clearer and simpler rules, not just more debt.
To prevent fraud and protect the EU’s financial interests, EPPO, OLAF, and Europol must be strengthened. The Parliament’s oversight rights must also be upheld.”
Background
The presentation of the European Court of Auditors (ECA) Annual Report on Wednesday, 10 October, kicked off the scrutiny of the EU’s 2023 accounts by the European Parliament. In the report, ECA issues an opinion concerning the reliability of the accounts, and several opinions on the legality and regularity of the transactions underlying the accounts. Over the next months, CONT Committee will hold hearings and analyse relevant documents to assess the way the Commission and other EU institutions have managed the 2023 EU budget. The scrutiny will result in the annual “discharge” votes in spring 2025.