Debate: Presentation of the Court of Auditors' annual report
Date: WEDNESDAY, 18 OCTOBER 2023
Speaker: Tony Murphy
Language: EN

However, we gather here at a time when the world’s attention is directed to the Middle East and other places, following recent attacks that have caused harm and suffering to innocent civilians. Before I move on to the key takeaways from our annual report, allow me to express our heartfelt sympathies to all those who have been affected. So, what are the takeaways? The main output of the ECA’s annual report are the opinions we provide on whether the revenue and expenditure that make up the EU budget are reliable, and whether transactions underlying them are calculated correctly and comply with the legal and regulatory framework. We offer two separate opinions on the legality and regularity of 2022’s expenditure: one for the traditional EU budget and one for the RRF, reflecting the different nature of these types of expenditure. Starting with our opinion on the 2022 EU accounts, as in previous years, we found them to present a true and fair view of the EU’s financial position. We provide a clean opinion on the reliability of the accounts. Similarly, with respect to the revenue which has been booked, we provide a clean opinion. Transitioning to our findings on expenditure, and starting with EU budget spending, which relates to the MFF, we saw an increase in the overall level of irregularities, rising to 4.2% in 2022 from 3% in 2021. Given the widespread occurrence of the errors identified, we have maintained an adverse opinion on expenditure for the fourth consecutive year. The cohesion policy area continues to be the main driver of the increase in our overall error rate. It represents the EU budget’s largest policy area, accounting for 40% of our audited expenditure and, in this policy area, we estimate the error rate at 6.4%, compared to 3.6% in 2021, marking a nearly 80% year-on-year increase. Ineligible costs, along with infringements of internal market regulations – particularly non-compliance with procurement and State aid rules – contributed most significantly to the estimated error rate. Moving on to our audit of expenditure under the Recovery and Resilience Facility and the second opinion that we issue in relation to this expenditure. This second opinion is necessitated by the distinct delivery model of the RRF, which focuses on the achievement of milestones and targets rather than the reimbursement of incurred costs. We assessed almost all of the milestones and the targets included in the 13 payments made to 11 Member States in 2022. Our conclusion is that 15 milestones and targets were affected by regularity issues. These issues either resulted from unsatisfactory fulfilment or non-compliance with eligibility conditions. We also found weaknesses in the RRF control system through our work. Based on both qualitative and quantitative considerations, we therefore issue a qualified opinion on the RRF expenditure in 2022. Assessing regularity under the facility remains a challenge for us due to the fact that we continually find milestones and targets that are vaguely defined. The varying conclusions and interpretations that the RRF permits underscore the weaknesses in its overarching design. Furthermore, by the end of September 2023, Member States had received only 21% of the total funds available for distribution under the facility, despite its scheduled conclusion in 2026, reflecting a slower-than-anticipated take-up rate. Absorption across the EU budget is a key area of concern that we raise in our annual report. Outstanding commitments from the EU budget and NGEU grant funding reached a record level of EUR 453 billion at the end of 2022. Member States are under increased pressure to absorb funds from competing initiatives. The pressure to increase spending places a strain on administrative resources, consequently elevating the risk of errors. This pressure has undoubtedly contributed to the increase in the error rate for 2022. Furthermore, when we talk about spending, it’s important to recall how spending is funded. Borrowing was a source of funding for the NGEU and financial assistance to Member States and third countries. In that view, EU debt has increased in 2022 to EUR 344 billion compared to EUR 237 billion at the end of 2021. As I say, mainly due to the borrowing for NGEU, which totalled EUR 97 billion. The repayment of the NGEU borrowing will have to start by 2028 and has to be completed by 2058. In other words, the next generation will have to repay it. Finally, exposure of the EU budget totalled EUR 248 billion by the end of 2022, an increase from EUR 204.9 billion in 2021. Again, this increase is mainly related to the borrowings for the additional RRF and SURE loans which have been made to Member States and the MFA loans to Ukraine in 2022. To summarise, the EU budget continues to grow in scope and complexity. Competing funds result in record high commitments and place pressure on Member States to absorb funds, thus increasing the risk of error. As the EU borrows to support additional payment needs triggered by the COVID-19 pandemic and Russia’s war of aggression against Ukraine, EU debt and exposure of the EU budget continues to rise. As I already said, it will be for future generations to deal with the consequences of these actions, while the means for repaying these debts has yet to be determined.