The EU Auditors have, for the 15th year in a row, refused to sign off the EU’s accounts owing to Fraud and Mismanagement in the budget

And here we go again! 15 years in a row – must be a world record of a sort.

And remember – This is our money they are misspending.

http://openeuropeblog.blogspot.com/2009/11/here-we-go-again.html

Here we go again

The European Court of Auditors has, for the 15th year in a row, today refused to sign off the EU’s accounts.

EU anti-fraud Commissioner Siim Kallas anticipated this predicatable development in a piece on EUobserver yesterday in which he attempted to pin the blame for the mismanagement of EU funds on national governments and regional authorities.

(In classic Commission style, he also tried to ward off all critcism and shut down debate by getting in there first with the trademark ‘anti-EU’ jibe: ”some quarters will yet again use the report to promote their own anti-EU agendas, which have little or nothing to do with the report’s findings.”)

But, as we argue today in a new briefing, the problem is with the EU budget itself. It is dominated by two failing policies which even the current UK Government is essentially opposed to: the Common Agricultural Policy, and the so-called Structural Funds. The sheer size and complexity of these two top-down spending programmes means the EU’s budget is wide open to waste and mismanagement, regardless of whether the blame lays with the Commission or the member states. The budget therefore represents extremely bad value for taxpayers’ money.

Also, while mismanagement of the accounts continues to be problematic, arguably the most important issue is the fact that the EU budget is hugely wasteful and irrational in terms of what the money is actually spent on, and where the money is spent.

To illustrate this, we have today published a light-hearted list of 50 new examples of EU waste, which may make you smile and despair in equal measure.

50 new examples of EU waste

http://www.openeurope.org.uk/research/top50waste.pdf

http://www.openeurope.org.uk/media-centre/pressrelease.aspx?pressreleaseid=126

Open Europe publishes 50 new examples of EU waste

10 November 2009

Today, the EU’s accountants – the European Court of Auditors (ECA) – have published their annual report on the EU’s budget. The ECA has refused to give the EU’s accounts a clean bill of health for the 15th year in a row, owing to fraud and mismanagement in the budget. Like last year, the auditors did sign off the Commission’s own accounts, saying that they accurately represented how much money was raised and spent.

Although the ECA’s report is about the management of the accounts, the occasion represents an opportunity to take stock of the EU budget as a whole. Because while mismanagement of the accounts continues to be problematic, arguably the most important issue is the fact that the EU budget is hugely wasteful and irrational in terms of what the money is actually spent on, and where the money is spent.

The budget is dominated by two failing policies which even the current UK Government is essentially opposed to: the Common Agricultural Policy, and the so-called Structural Funds. The sheer size and complexity of these two top-down spending programmes means the EU’s budget is wide open to waste and mismanagement, regardless of whether the blame lays with the Commission or the member states. The budget therefore represents extremely bad value for taxpayers’ money.

To illustrate this, Open Europe has produced a list of 50 new examples of EU waste. The list is by no means comprehensive, but designed to show the types of peculiar projects on which EU money has been wasted in the past. They give a light-hearted illustration of what is wrong with the EU budget, and the need for fundamental reform.

Open Europe Research Director Mats Persson said:

”The Commission tries to put the blame for fraud and waste on the member states, but the real problem is the EU budget itself. The EU’s spending programmes are overly complex, irrational and hopelessly out of date. Until they are subject to root-and-branch reforms, or scrapped altogether, waste and fraud will continue.”

”Too often, EU money is wasted on inefficient projects which are based on unrealistic expectations or for which there is no real demand. Because of the way the EU’s spending schemes are set up, bizarre or wasteful projects can receive funding which never would have received money if subject only to national spending priorities. Unfortunately, the focus of the EU budget is to get the money out of the door, not to spend the money wisely.”

“Surely, in a recession, we can think of better ways to spend £100 billon a year?”

To read Open Europe’s 50 new examples of EU waste see here:

www.openeurope.org.uk/research/top50waste.pdf

To read some background on the EU budget, please see below.

TOP 10 EXAMPLES OF EU WASTE

€173,000 for a luxury golf resort

€173,274 in EU funds were given to the luxury golf resort, Monte da Quinta Club, in the Algarve, Portugal,[1] where guests can choose between “the comfort of a villa with garden and private pool, or be dazzled by deluxe suites”.[2] There is also a luxury spa, health club, several restaurants and bars, shops and a hairdresser.

€2,500 for Chairman of Porsche’s hunting retreat

Wolfgang Porsche, supervisory board Chairman of Porsche, received €2,500 in EU rural development funds for a small estate in Bavaria, Germany, where he goes hunting in his free time.[3]

€100,000 for a luxury Spanish hotel chain

€99,877 in EU funds for 2009 alone were granted to Tils Curt, a chain of luxury restaurants and hotels across Spain, established in 1880. The funds were given as part of the Regional Development Fund.[4]

‘Donkeypedia’: the blogging donkey

As part of the EU’s €7 million ‘Year of Intercultural Dialogue’ initiative, the European Commission ran an art education project called “Donkeypedia”, in which a donkey travels through the Netherlands, and primary school children meet and greet the donkey. The aim of the project was “creating a reflection of all European identities. What are the similarities, what are the differences? What is it that makes Europe as unique as it is? Donkeypedia will try to make this feeling tangible by interacting and in dialogue with its surroundings while walking a European route through several countries and collecting data to support this image.” The donkey, named Asino, also maintained a blog throughout the walk. One entry reads: “We started really early today, Cristian slept in a bed in a house. It was a crazy morning waking up. I was under a chestnut tree sleeping in sand, when I opened my eyes there were animals all looking at me. I was embarrassed! Now I understand a little how people from different cultures may feel in the Netherlands.”[5]

€80,000 for a Swedish ‘virtual city’ in Second Life

In early 2008, Sweden’s third largest city, Malmo, was given an EU grant worth 800,000 Swedish kronor (€80,000), to create a virtual version of itself in “Second Life” ­- a virtual fantasy world inhabited by computer-generated residents. The project was an attempt to reach out to young people and envisioned some of Malmo’s most famous buildings – such as its library and university – to be mirrored in Second Life. In addition, the project included plans for a virtual “citizens’ office”, in which City officials could do their work and meet with those inhabitants of Malmö who were active in Second Life (the number of Malmo residents active on Second Life is thought to be very small).

In May 2009, Malmo was launched as a ‘virtual city’. By then, the budget had been busted – and the project had been subject to massive criticism, as Second Life was no longer regarded as the future of social media – particularly not amongst young people. One of the politicians involved in the project said: “Malmö wants to be at the forefront of IT, but we’re aware that Second Life is probably not at the absolute forefront anymore.” Joakim Jardenberg, of Swedish IT company Mindpark, added that he thought the project was a “bizarre joke” at first. “Second Life has never been particularly popular in Sweden. Facebook would have been a better tool”, he said. In March 2010 the project will be evaluated. If virtual Malmo does not have enough visitors by then, the project will be shut down.[6]

€850,000 for a ‘gender equal’ wood design centre

Local politicians in Orsa, a village of 5,000 inhabitants in Sweden, wanted a new wood ‘design centre’, describing the idea as “a catalyst and meeting place for all creative activities”. The project description stressed that “the building would clearly display a gender equality design.” The project won co-financing from the EU’s structural funds, which provided €850,000 of the €1.7 million that was budgeted for the project. However, when the funds ran out, the politicians decided to combine the wood design centre with the village’s other EU project, a wildlife centre, which had cost €3.2 million up to that point. The wildlife centre was in need of a spectacular new entrance hall – which became the wood centre. In their final report on the project the politicians confessed that the building had not necessarily promoted cultural events, but proudly emphasised that all parts of the building were “equally accessible regardless of gender.”[7]

€400,000 on a Marathon for a United Europe

In September 2008 the EU spent €400,000[8] on a “Marathon for a United Europe” for young people from across the EU. Among the aims for the three-day event in Greece was to “promote and support European citizen ideals.”[9] On the official website the Marathon is described as “a completely European event supporting in every way the harmonious and prosperous coexistence of young people under the EU umbrella.”[10]

The Swedish cannabis farmer

A Swedish farmer received around 2,000 kronor (€200) in subsides from the EU for land on which he grew cannabis plants. Selling the drug is illegal in Sweden, but growing the plant is allowed if it is used for “industrial” purposes – for example to produce robust nets – provided that the so-called THC dose in the plant is below 0.3%. The subsidy to the Swedish farmer was paid from the EU’s Single Farm Payment scheme, and the farmer had filled in all forms correctly. However, since farmers receive subsidies from this scheme irrespective of what they have grown on their land, there’s no obligation on the Swedish farmer to inform the authorities about what he actually intends to use the cannabis plants for.[11]

€400,000 to get children drawing portraits of each other in the name of European citizenship

“Alter Ego” is an art competition running in at least 22 EU countries. The aim of the project, which used €400,000 of EU funds[12], is to encourage young people aged 14 to 18 to “explore different and varied identities, by creating a double portrait” – a portrait of themselves and someone from a different cultural background[13]. The competition is intended to “Raise the awareness of all those living in the EU, in particular young people, of the importance of developing an active European citizenship.”[14]

€198,500 for EU puppet theatre network in the Baltics

In 2008, the Estonian State Puppet theatre received €198,500 in EU funds for a project with the Latvian State Puppet theatre and Vilnius puppet theatre, which aimed to “develop the cooperation between the puppetry masters and museology specialists with the EU in order to find new and innovative ways on how to archive the puppet performances and present the exhibits in the puppetry art museums; encourage the Baltic countries to take more actively part in the intercultural dialogue; encourage the creation of puppetry art museums in other European puppet theatres.”[15] This is not to be confused with the €105,996 EU grant the Estonian State Puppet Theatre received in 2006 “to explore the similarities and diversities within a range of European cultures and cultural expressions”, as reported in last year’s list of examples of EU waste.[16]

NOTES FOR EDITORS

1) For more information, please contact Mats Persson on 0044 207 197 2333 or 0044 779 94 606 91.

2) Open Europe is an independent think-tank calling for reform of the European Union. Its supporters include: Sir Stuart Rose, Executive Chairman, Marks and Spencer plc; Sir Crispin Davis, Former Chief Executive, Reed Elsevier Group plc; Sir David Lees, Chairman, Tate and Lyle plc; Sir Henry Keswick, Chairman, Jardine Matheson Holdings Ltd; Lord Sainsbury of Preston Candover KG, Life President, J Sainsbury plc; Sir John Egan, Chairman, Severn Trent plc and Lord Kalms of Edgware, President, DSG International plc; Hugh Sloane, Founder, Sloane Robinson.

For a full list, please click here: http://www.openeurope.org.uk/about-us/supporters.aspx

BACKGROUND

WHAT DID THE AUDITORS SAY IN THEIR REPORT ON THE 2008 EU BUDGET?

In its report on the 2008 EU budget, the ECA refused to sign off on how the money from the EU’s 2008 budget had been spent. While saying that the overall situation is improving, the Court noted that a number of spending areas in the budget are still “materially affected by errors”. These include the EU’s policies on cohesion; research, energy and transport; external aid and enlargement; and part of the agricultural programme.

However, the ECA gave an unqualified or clean opinion on the reliability of the 2008 EU accounts. This means that the Court considers the EU Commission’s accounts to present a fair and accurate picture of how much money was spent out of the EU budget.

The Court concluded that cohesion policy, or the Structural funds, which is the second largest spending area in the budget (representing almost a third of the budget), “remains problematic and is the area most affected by errors.” The Court estimated that at least 11 % of the total amount paid out in grants from the Structural Funds should not have been paid out in the first place.

Crucially, the auditors noted that “In many situations the errors are a consequence of too complex rules and regulations. Simplification, therefore, remains a priority.”

“Agriculture and natural resources” – part of the EU’s Common Agricultural Policy (CAP) – was given a clean bill of health for the first time.

To read the ECA’s report, click here: http://eca.europa.eu/portal/pls/portal/docs/1/3258349.PDF

BACKGROUND INFORMATION ON THE EU BUDGET

The EU budget is worth about €975 billion (£875 billion) between 2007-2013. According to the Treasury, the UK pays in almost £10 billion a year into the EU’s budget, on average (after the rebate), and gets back about £5.2 billion on average. Crucially, the UK’s net contribution will go from £3 billion in 2009-10 (gross contribution £7.6 billion) to £6.4 billion in 2011-12 (gross contribution £12 billion), according to the Treasury’s projection.[17]The UK is also the EU country that receives the least back from the budget per head.

Ultimate responsibility lies with the Commission

The EU Commission has consistently argued that responsibility for the mismanagement of the EU budget lies at the national level, not with itself, as 78 per cent of EU funds are distributed by member states in agricultural payments and structural funds. However, as the ECA made clear in this year’s report, “Responsibility for the legality and regularity of spending on Cohesion Policies starts in the Member States, but the Commission bears the ultimate responsibility for the correct implementation of the budget.” And in previous reports, the ECA has noted, ”Regardless of the method of implementation applied, the Commission bears the ultimate responsibility for the legality and regularity of the transactions underlying the accounts of the European Communities (Article 274 of the Treaty).”

No link between spending and need

Crucially, the link between spending and need in the EU budget is weak. Per head, the top three recipients of EU funds continue to be old member states – Luxembourg, Belgium and Greece. France continues to be the largest recipient of EU funds of any member state in absolute terms. France receives €89 billion from the EU between 2007-2013, compared to €46 billion for the UK.

The CAP is particularly bad in this respect. The CAP currently transfers money from the poorest member states to countries like France and Spain. For example, in 2004, the 10 new member states paid nearly €1 billion more into the CAP than they got out of it (€835 million).

KEY AREAS OF EU WASTE

Agriculture

· The EU spends some €54 billion a year on various types of farm subsidies (compared to €42 billion in 2001). In its opinion on the 2008 EU budget, the ECA signed off parts of the agricultural budget but stated that the “rural development” spending is still subject to errors. The ECA noted that 32 % of the transactions involving EU rural development funds were affected by error.

Even without the fraud and mismanagement, the CAP is a wasteful and distorting policy:

· According to an OECD estimate for 2006, the ”real” cost of the CAP is 125 bn euros a year, paid through higher prices and added taxes. The report also estimated that food in the EU is on average 20% above the world price, due to EU subsidies and tariffs.

· This hits the poor hardest because the bottom fifth of households in the UK spend 16% of their income on food – double the proportion spent by the richest fifth (7.5%)

· According to a 2005 report by Oxford Economic Forecasting, scrapping the CAP and reforming tariffs could make the bottom 10% of earners £437 a year per person better off.

· Since the introduction of the so-called Single Farm Payment a large part of CAP subsidies are now based on ”area” and have nothing to do with actual farming and production. As a consequence, a large number of non-farmers are now receiving subsidies. In recent years there has been a rash of stories about payments to golf clubs, various royalties, pony clubs and a number of large multinationals such as Coca-Cola.

· The real winners from the system are landowners, as subsidies allow owners of land and suppliers of inputs to put their prices up by an equivalent amount and so ”capture” the money spent on subsidies.

Structural Funds

· In its report, the ECA found that for the Structural Funds – which are worth around €45 billion a year 43% of the funded projects contained ”errors”. In terms of ”financial impact” the Court concluded that around 11%, of the total amount reimbursed to member states in 2008 should not have been reimbursed – the same share as last year.

Like the CAP, even without the notorious problems with fraud, the Structural Funds remain largely wasteful:

· The Structural Funds are aimed at creating jobs and boosting Europe’s competitiveness. In particular, the objective is to help poorer regions catch up with richer ones. However, there is no conclusive evidence that the Funds have had any positive economic impact. In fact, as the OECD has argued, the rate of ”convergence” in the EU is very slow – at the current rate of convergence it would take 170 years to halve divergence across the regions in the EU. (OECD 2007)

· The EU will spend close to 310 bn euros in 2007-2013 on the Structural Funds. Of this, only slightly more than 50% will go the new member states – the rest will be spent in the EU-15. (DG Regio 2006)

· Bizarrely, each region, no matter how rich, receives some sort of EU funding. For example, one of the richest regions in Germany, Lüneburg, was granted a staggering 900 million euros from the EU for the 2000-2006 financial period.

· Even within the regions, the funds are poorly targeted. Research by Open Europe found that as little as 10-30% of funds given to South East England were spent in the poorest one-fifth of areas.

· As the ECA has pointed out separately, the EU’s so-called N+2 rule (allocated funds must be paid out within two years or the money will be cancelled), encourages fast rather than wise spending. This has exacerbated problems with poor project selection.

· Even though regions now have significant autonomy in deciding which projects to select (they must select projects, or the funds will be cancelled), there are still restrictions on what they can spend the money on. For instance, national authorities are not allowed to spend funds on social housing.

Culture and citizenship projects

· The EU has a robust budget for promoting European culture and citizenship, particularly among young people. While this may on the face of it sound like a worthwhile way to spend money, it is clear from the EU’s many policy documents and project briefs that the underlying aim of culture and citizenship initiatives is to promote the idea of European integration and ‘ever closer union’.

· The EU makes millions of euros a year available in EU grants to all manner of projects intended to promote the EU and its policies in everything from schools to concert halls to cinemas, and even directly funds NGOs and organisations promoting European integration. This is an unacceptable use of taxpayers’ money, since it unfairly favours those who wish to see a more integrated EU at the expense of those who do not. Worse, it does not allow for a balanced debate about the future of Europe, and this is especially worrying when school children and young people are the targeted audience.

· In 2008 alone, the EU spent more than €2.4 billion promoting European integration and ‘ever closer union’ through a myriad of funding streams and through the various Commission departments – DG Culture, DG Education and Citizenship, and DG Communication. [18]

· For example, more than €34m was dedicated to “Fostering European Citizenship”, and a further €62m was spent on “Developing cultural cooperation in Europe.” The very candidly stated aim of this is to generate support and justification for European integration. As the 2006 decision on the “Europe for Citizens” policy notes: “The Treaty establishes citizenship of the Union… It is an important element in strengthening and safeguarding the process of European integration.”

· Likewise, the EU’s €400 million Culture Programme states that: “For citizens to give their full support to, and participate fully in, European integration, greater emphasis should be placed on their common cultural values and roots as a key element of their identity.”

· Many of the examples of this nature are included in our 50 top examples since they are simply bizarre, and it is very difficult to imagine how they could possibly represent value for taxpayers’ money.

· There is also the wider question about whether or not the EU should even have a budget for culture, citizenship, education and communication in the first place, since it has no democratic mandate to legislate in these areas. ——————————————————————————–

[1] Algarve regional development agency; http://www.ccdr-alg.pt/ccdr/parameters/ccdr-alg/files/File/upload//PO_Algarve_21/Projectos_Aprovados/Quadro_aprovacoes_webpage_emp_rev.pdf p.2

[2] See the club’s website here; http://www.mqclub.com/MQ.aspx?tabId=13&code=en

[3] TAZ, ‘Bayerische Promis streichen Agrarhilfen ein’, 4/8/2009; http://www.taz.de/1/archiv/print-archiv/printressorts/digi-artikel/?ressort=wu&dig=2009/08/04/a0076&cHash=0f03d0b936

[4] Andalucian Regional Government, Account of Operations by Beneficiary: Andalucian Operative Programme FEDER, September 2009; http://www.dgfc.sgpg.meh.es/aplweb/pdf/DescargasFondosComunitarios/(2104)AN1.pdf p.182; see also; http://www.tilscurt.com/

[5] http://www.donkeypedia.org/

[6] Tillväxtverket (Swedish managing authority for the structural funds), see ”Projektbanken”, http://projektbanken.tillvaxtverket.se/sb/d/1335/a/8133; Sydsvenskan, “Nu finns Malmö stad i Second life”, 10 May 2009, http://sydsvenskan.se/malmo/article430331/Nu-finns-Malmo-stad-i-Second-life.html : Sydsvenskan, “ Experterna gör tummen ner för Malmö stads satsning”, 6 May 2009, see http://sydsvenskan.se/malmo/article430333/Experterna-gor-tummen-ner-for-Malmo-stads-satsning.html

[7] Näringsliv och utvecklingskontoret, Orsa Kommun ”Slutrapport Designtorg Trä (W3041-991-02) 1 Januari 2003-30 september 2007, see http://www.projektbanken.z.lst.se/rapporter/Fil-200810311193.pdf ; Expressen, ” Björnkramar för miljoner”, 3 August 2009, see http://www.expressen.se/Nyheter/1.1659350/bjornkramar-for-miljoner

[8] http://ec.europa.eu/dgs/education_culture/calls/docs/grants08dira.pdf

[9] http://www.britishcouncil.org/greece-sport-marathon-for-a-united-europe.htm

[10] http://marathonforaunitedeurope.com/index.php?option=com_content&view=article&id=50&Itemid=92

[11] Aftonbladet, “Odlar cannabis med EU-bidrag”, 19 August 2009, see http://www.aftonbladet.se/nyheter/article3128434.ab

[12] http://ec.europa.eu/dgs/education_culture/calls/docs/grants08dira.pdf

[13] http://www.eunic-europe.eu/EUNIC-website/fileadmin/user_upload/Press_info/Alter_Ego.pdf

[14] http://www.pact-online.ro/aedi-en.php

[15]http://eacea.ec.europa.eu/culture/funding/2008/selection/documents/selection_strand_1_2_1_2008/selectionresults_strand1.2.12009.pdf

[16] See: http://www.openeurope.org.uk/research/top100waste.pdf

[17] See, http://www.hm-treasury.gov.uk/d/european_community_finances_2009.pdf)

[18] For more see here: http://www.openeurope.org.uk/research/hardsell.pdf

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