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EU: Expenditures Fraught With Fraud, Waste And Error

Prague, 20 November 1997 (RFE/RL) -- Every year about this time, the European Union's audit office publishes a long and highly revealing report on waste, fraud, and error in the 15-nation bloc's expenditures. The auditors usually find far more mismanagement at the EU than is true of its individual member states. This year is no exception, with the audit again showing that more than five percent of all EU payments were, in one way or an other, mismanaged.

The report is the work of an entirely independent, Luxembourg-based Court of Auditors. The name is a translation of the French term "Cours des Comptes," even though the 500-staff audit office has no juridical power and can only recommend remedies, not impose them. The audit report is made public first to the EU's Parliament, which considers it in detail for a full six months before also recommending action. Its goes as well, of course, to the EU's Executive Commission, the main subject of the audit, which handles almost all of the EU's pay-outs and is responsible for most misuse of funds.

Member states get the report, too. But analysts say that most members are quite happy with the present administrative looseness in EU disbursements. That's because it allows them to receive tens of thousands of millions of dollars annually in agricultural subsidies and regional funding in a manner to which they have grown fondly accustomed. In the words of one analyst (the "Sueddeutsche Zeitung's" Andras Oldag, Nov. 18), the sloppiness in EU procedures "enables members to help themselves to funds exactly as it suits them."

Britain, which takes over the EU's presidency in five weeks, is an exception to most members' contentment with the present porous expenditure system. A top official in the British treasury, Helen Liddell, yesterday called this year's 417-page report "disturbing reading." She promised that her government would treat the reduction of fraud and waste as a prime aim of its six-month presidential term.

How that can be done without totally revamping the EU subsidy system, a basic reform the Union has so far been reluctant to make, is another question. But the reform must be undertaken before the EU's promised expansion to Central and Eastern Europe. Otherwise, a Union expanded to nearly twice its present size will simply not be able to meet its financial commitments.

Reform is also important to correcting the EU's poor image among the more than 340 million citizens in its current member states. Presenting this year's report to the European Parliament two days ago (Nov. 18), Court of Auditors President Bernhardt Friedmann began by making that point. He noted that recent opinion polls showed more than two-thirds of EU taxpayers consider irregular or fraudulent use of their money to be much worse a crime than tax evasion.

In what areas are disbursements in the EU mismanaged? According to the report, virtually everywhere, although two programs are most striking.

One of the biggest mismanaged areas is agricultural subsidies. In the past two years (1995-96) alone, the auditors found, cereal farmers were paid some 3,400 million dollars more than was necessary under the EU's Common Agricultural Policy (CAP), whose administrators have recently sought to cut back their support of farm prices. Friedmann told the Euro-Parliament that he was concerned the CAP had no provision yet for reducing subsidies to farmers in line with rising world prices for agricultural produce. He offered no explanation, but analysts say that members like France, Spain and --yes-- Britain, which receive huge EU agricultural subsides, won't risk offending their farmers by agreeing to such reductions.

The report also singled out the administration of preferential import schemes to non-EU member nations as a source of much mismanagement and, probably, fraud. Friedmann said that his auditors has established "that the volume of orange juice imported into the EU from one non-member country under preferential arrangements was equivalent to almost three times that country's potential for orange production." The country involved was not named, but was widely believed to be Israel.

So great was the volume of errors, waste and likely fraud last year in the EU that Friedmann had to admit his court was what he described as "unable to affirm the legality and regularity of the transactions underlying payments." But, he added, the report was basically accurate in its view of faulty expenditures. He said that weaknesses in the administration and control of disbursements point up that the development of EU accounting and financial management has failed to keep pace with an expansion of the Union's activities. It also means, in the report's words, that the EU "Commission's handling of unsatisfactory in many ways."

According to analysts, that's putting it very mildly.