Have the EU’s accounts for the past 19 years been signed off by the auditors or not? The EU says they have been signed off, while critics in parliament and the media say they have not. So who is telling the truth about the accounts? What are the real facts?
First, a little background to the controversy. Since 1977, the EU’s budget has been audited annually by a body called the European Court of Auditors, based in Luxembourg. The Court is nominally independent, although it is part of the EU and is funded by the EU.
In the 1980s, the EU’s budget became the subject of allegations of fraud, so in 1988 the EU formed UCLAF – the Unit for the Co-ordination of Fraud Protection.
After 10 years, no-one was prosecuted
A decade later, In 1997, the Court of Auditors investigated UCLAF and discovered that it was dealing with 40 cases of potential corruption, conflict of interests, favouritism or just bad management. Many of the cases had been brought to UCLAF by members of staff of the Commission reporting their suspicions about other officials.
In a report described as “devastating”, the Court revealed that no-one had been prosecuted for fraud and no-one was likely to be prosecuted, because UCLAF had no powers of investigation or arrest and there was no European prosecutor to take on such cases. It recommended that UCLAF be replaced by, in effect, an economic FBI with the staff and the powers to police the EU’s huge budget – a fully fledged operational fraud squad.
Later the same year, 1998, Paul van Buitenen, an assistant internal auditor in the European Commission’s Financial Control Directorate, turned whistleblower and wrote directly to the European Parliament expressing
his “. . discontent with the way the Commission services are dealing with irregularities and possible fraud.”
His whistleblowing led ultimately led to the resignation of the Commission presided over by Jacques Santer. His reward was to be suspended with his salary halved. He fought back and his exposures triggered the collapse of Santer’s Commission.
Formation of OLAF
In the wake of the “Santergate” scandal UCLAF was replaced by a new organisation, OLAF. This was said to be an improvement since OLAF had more staff, more money and clearer guidelines and was described as representing a move towards a more serious investigative prosecuting body. But it remained the case that only national member states could take legal action against suspected fraudsters – the same central weakness that had defeated UCLAF.
OLAF is notified of some 12,000 cases of possible fraud every year, and says that it adopts a “zero tolerance” policy towards corruption and fraud in EU institutions. In reality, OLAF must be somewhat more tolerant than “zero” as it investigates only some 200 cases per year – that is to say 98% of reported cases go uninvestigated.
This is the most likely explanation of the fact that, since 1999, OLAF has sent only 335 people to jail and recovered only 1.1 Billion Euros of EU money – less than one-thousandth of the amount unaccounted for.
One other obstacle to OLAF nailing anyone inside the EU is that EU law gives EU officials immunity from prosecution both while they work in the EU and then for the rest of their lives for any acts committed in the course of their duties. Even if OLAF managed to put together a case against an EU employee, he or she could not be prosecuted anyway.
First Chief Accountant appointed
This long history of corruption and fraud brings us to the case of Marta Andreason, who in 2002 was appointed the EU’s first Chief Accountant, the director responsible for budget execution and the EU’s accounting officer.
From the start, Andreasen was critical of the EU’s accounting system for being open to fraud, criticisms she raised with her superior but to no effect. She voiced her doubts to Commissioner Michaele Schreyer and the Commission President Romano Prodi, and when she got no reply approached members of the EU Parliament’s Budget Control Committee.
Because of her doubts, she refused to sign off the 2001 European Commission accounts and went public with her concerns. She suffered a similar fate to Paul van Buitenen before her, and was sacked for speaking out (“failure to show sufficient loyalty and respect”.) In reality she was fired for refusing to sign the account and embarrassing the Commission by letting the cat out of the bag about the extent of fraud.
A series of other EU officials tried to blow the whistle on the fraud and corruption of their colleagues and all received similar treatment, Dorte Schmidt-Brown, Robert Dougal Watt and Robert McCoy. Their cases are detailed below.
At this point, in 2002, EU officials realised that they could no longer conceal or ignore the extent of fraud and corruption in the EU budget and that they must act to try to restore public confidence in the EU’s financial affairs. So they did what most large bureaucratic organisations do in these circumstances. When you cannot change the facts, you change the way the facts are presented. So the EU turned to public relations to solve their problem.
Change in accounting practice
From 2002 until the present, the Court of Auditors continued to audit the budget annually, but they no longer signed off the accounts as a whole. Instead, they have split the budget into two sections – the part to which they are willing to give a clean bill of health, and the part to which they are not willing to give a clean bill. The Auditors refer to this second part as its “opinion on the underlying payments which have been negative or adverse”.
To justify this change in established auditing procedure it came up with a number of arguments. The budget is too big and too complicated for us to expect them to account for every penny. Every large organisation has amounts missing and unaccounted for. We can’t expect the EU Auditors to know every little thing that goes on inside member countries. The bit that’s not signed off is “only” a few per cent of the budget so it’s not worth making a fuss about. And, in any case, said the Auditors, although we do not know where the money went or who took it, we can say that it definitely wasn’t fraud or theft.
“Errors”, said the auditors, “do not mean that EU money is lost, wasted or affected by fraud.” When asked to give an example of some money that had gone missing that wasn’t fraud, the EU said, “A farmer was granted a special premium for 150 sheep. The Court found that the beneficiary did not have any sheep. The corresponding payment was therefore irregular.” The missing money is accounted for by changing the word “fraud” to the word “irregular”.
Despite Orwellian verbal contortions like this, there are some elements of truth in the EU’s arguments. Balancing the books and accounting for all the expenditure of an organisation as big as the EU is not an easy task.
But remember, the question we are trying to answer here is not, “How difficult is it to audit the EU’s accounts?” but rather “Have the EU accounts been signed off for the past 19 years.” And the only honest answer to this second question is clearly, “No, they have not been signed off”.
What the EU has done is not to make extra efforts to get to the bottom of its accounts and sign them off, but to change the normal rules of accounts auditing so that they no longer apply to the EU, and to change the meaning of ordinary English words to try to persuade us that this procedure is acceptable.
So that when The Daily Telegraph says “that EU auditors refuse to sign off more than £100 billion of its own spending” or the BBC’s John Humphreys on Radio Four’s “Today” says the same thing, they are – according to the EU – the victims of a “misunderstanding”.
(I am reproducing the EU Court of Auditors press handout of 11 November 2014 in its entirely below because it is a masterpiece of sleight of hand that deserves to be read word for word, very slowly.)
Some of the EU’s arguments might hold water were it not for one over-arching fact that makes them pale into insignificance. It’s true that, in 2015, the amount not signed off by the Court of Auditors was “only” 4.7% of the budget. The problem is that 4.7% of the budget is 6.97 BILLION Euros – enough to build 70 major hospitals or 150 large secondary schools.
And in the Court of Auditors own words, (their emphasis) “The £109 billion refers to the spending areas for which our audit work shows a material error rate.”
Over the past twenty five years, I have delivered hundreds of training courses in PR and Journalism to thousands of PR people and journalists. I’ve also written four books on PR and propaganda, one of which the Sunday Times was kind enough to name as its Business Book of the Week. A key element of my workshops is to caution delegates against the temptation to try to use PR methods dishonestly to influence people. I illustrate this using the most egregious press releases sent to me over the years as examples.
In future I shall not use my collection of ‘black’ press releases. I shall instead use the press handout from the EU Court of Auditors (below) as my primary training example as it is the worst that has ever crossed my desk. In my opinion, It has everything that a press statement should not have: dissembling, deceit, weasel words, misdirection, a fog of undefined terms, arrogant condescension, and a personal attack on journalists reporting accurately and honestly. It is a clarification that it wholly lacking in clarity.
It says the EU’s accounts have been signed off but at the same time says that part of the EU’s accounts has not been signed off. It places the blame for failure to comprehend this elementary distinction on us, the public. If we think the accounts haven’t been signed off, it’s all been a “misunderstanding” on our part because we don’t understand EU accounting procedures.
Or, as George Orwell (who must be spinning at near light speed in his grave) would have said, we have not yet learned, like the EU, to practice the art of Doublethink.
Downloaded from http://eu-rope.ideasoneurope.eu/statement-european-court-auditors/
(NOTE: all emphasis is in the original statement)
Clarifications by European Court of Auditors
11 November 2014 14:57
Re: Claim by Telegraph that EU auditors refuse to sign off more than £100 billion of its own spending
It is a frequent misunderstanding that the ECA did not approve or sign off the EU accounts. As stated in our Annual Report on the implementation of the EU budget for 2013 (published last week), the ECA has signed off the 2013 accounts of the European Union (as it has for every financial year since 2007). The misunderstanding might be related with the ECA’s opinion on the underlying payments, which has been negative (adverse) for 2013 and the preceding 19 years.
In relation to the cited article by the Daily Telegraph, I hope the following explanations will be useful in reporting correctly about the findings of our Annual Report. You may also consult our FAQ sheet, which we have published to encourage correct understanding and reporting of our Annual Report.
The cited Daily Telegraph article among others says that the Brussels accounts have not been given the all clear for 19 years running, that £5.5 billion of the EU budget last year was misspent because of controls on spending that were deemed to be only partially effective by experts, and that the audit found that £109 billion out of a total of £117 billion spent by the EU in 2013 was affected by material error.
What we say in our Annual Report is:
The ECA has signed off the 2013 accounts as reliable (given a ‘clean opinion’), as it has for every financial year since 2007.
The ECA concludes that the 2013 accounts present fairly, in all material respects, the financial position of the EU and its results for the year. As well as the opinion on the accounts, the ECA is also required to give an opinion – based on its audit testing – on whether the underlying payments were made in accordance with EU rules. For 2013, the estimated level of error in these transactions was again too high at 4.7% for the ECA to give a clean opinion on the regularity of expenditure.
The control systems are – in general – only partly effective. That is why there are errors in payments. The estimated error rate was 4.7%.
Ultimately, the blame for errors rests with those [- beneficiaries and/or Member State authorities – ] who make incorrect claims for funding. However, control systems at both Member State and EU level should prevent such claims being processed in the first place, or detect and correct them after the event. There is potential to use control systems more effectively to reduce the error rate. The ECA concluded that for a large proportion of the errors found, national authorities had sufficient information available to have detected and corrected many of them before claiming reimbursement from the Commission. This could have significantly reduced the error rate.
The total amount of EU budget in 2013 was €148.5 billion and the error rate was 4.7%.
In the past, some commentators have multiplied the total EU budget by the error rate and came up with a total for “money wasted”. This approach is simplistic and can be misleading.
The £109 billion refers to the spending areas for which our audit work shows a material error rate. This is correct but vastly overstates the impact of those errors: 4.7% of the budget as a whole.
Dorte Schmidt-Brown worked at the EU’s statistics agency Eurostat for nine years and became concerned by a number of dubious studies, reporting her suspicions to her superiors. She was transferred to another department. When she continued to speak out she was sent on sick leave. A subsequent investigation into Eurostat revealed what the investigators called a ‘vast enterprise of looting’, in which senior employees had diverted millions of euros into companies owned by friends, family and others.
Robert Dougal Watt was a British accountant who worked in the European Court of Auditors. Watt complained to the European Ombudsman about what he suspected was corruption within the auditing body. First, he was downgraded; then he was sacked. In explaining why they fired him, the disciplinary board said, ‘The veracity or otherwise of Mr Watt’s accusations was not something which the board believed it was called upon to consider.’
Robert McCoy had worked at the EU for more than 30 years and had risen to the post of Internal Auditor at the Committee of the Regions . McCoy was concerned about what seemed to be the systematic abuse of travel expenses by CoR members, including claims for meetings that didn’t take place, for car journeys already paid by members’ towns and councils and for train and air travel that had already been reimbursed. McCoy asked the committee’s secretary general to pass on the suspicious expenses claims to OLAF for investigation but his request was refused. When McCoy went public with his concerns, OLAF and the Court of Auditors were eventually called in to investigate. OLAF investigators concluded, ‘The investigation revealed systematic and flagrant incompetence within the Committee of the Regions to respect the essential rules of tendering procedures and financial management.’ Even though McCoy’s allegations were correct, he was hounded, insulted and bullied until he left on sick leave. No action was taken against the committee members who had allegedly stolen money.
The True Economic Cost of Corruption in Europe: Up to €990 Billion Annually
To fully understand the true economic costs of corruption within the European Union, the European Parliament commissioned RAND Europe to conduct an econometric analysis to estimate the potential harm of corruption on the EU and its member states.
The company’s analysis resulted in a new estimate of up to €990 billion in GDP terms being lost annually, demonstrating the significant economic impact of corruption on the EU and its member states. That’s more than eight times existing estimates.
For the United Kingdom, this is equivalent to €1,980 for each person, every year. The total loss to the UK each from EU corruption is up to €120 Billion every year.