Mr. Tony Murphy:

Good afternoon. I thank the Chairman and members of the committee for this invitation. It is a real pleasure for me to be here today for the first time in my capacity as the Irish member of the European Court of Auditors to present its annual report for 2017. I echo the Chairman's sentiments that it is a shame that we could not engage with our colleagues in the European Parliament which I will do on another occasion. Indeed, I thank the committee members for their best wishes conveyed to me when I was last here in January during the final stages of the nomination process.

Before I start with the presentation of the main findings of the annual report, I would like to introduce my two colleagues who are here with me today. Wolfgang Stolz is the head of my private office and Peter Borsos is my assistant and he is in the Public Gallery. I would also like to inform the committee that I have been assigned to chamber 2 in the court of auditors. Chamber 2 is responsible for investment for cohesion, growth and inclusion. We keep a very close eye on what happens in chamber 1 which is the sustainable use of natural resources and that concerns where most of the EU funding to Ireland comes, mainly in agriculture. My portfolio covers Chapter 6 of this annual report which we are discussing today and it covers the annual statement of assurance on cohesion policy which, along with natural resources, is one of the major EU policy areas. However, in terms of spending it is not the most significant for Ireland, representing only about 3% of Ireland’s total EU expenditure in 2017 which was about €51 million. In addition, I will have responsibility for some special reports in the near future including one on child poverty.

As members may know, the European Court of Auditors is the independent external auditor of the European Union. We produce a broadening range of products including the annual report, which we will discuss in detail today and also special reports, which we will discuss to a lesser degree. We also give opinions on legislative proposals, specific annual reports on agencies and joint undertakings, landscape reviews and rapid case reviews. That is an overview of the type of outputs that we produce on an ongoing basis.

The annual report is the main output for the year and our main product. It uses around half of the court's annual human resources. It reflects the outcome of audit visits to member states and the Commission. I am very happy to be here presenting it just two weeks after its publication on 4 October. The aim of our work is to provide an opinion on two questions: whether the accounts are accurate and reliable and to what extent there is evidence of money being received or paid out in error, known as regularity and legality. We have given a clean opinion on the EU’s accounts since 2007 and in our 2017 annual report, we also conclude that the EU accounts present a true and fair view of the EU’s financial position. Revenue for the EU budget in 2017 totalled €139.7 billion and had an estimated level of error of 0% so it is not a problematic area in any shape or form. This revenue was raised based on gross national income, GNI, of 56%, VAT of 12%, traditional own resources of 15% and 17% from other sources. That is the breakdown of total income contributions to the EU budget.

In terms of spending for 2017, expenditure totalled €137.4 billion euro, which represents roughly €270 for each EU citizen and is equivalent to 2% of total Government spending and 0.9% of EU gross national income.

Members can see that the audited population totalled €100.2 billion. Of that sum, €56.5 billion, or over 50%, concerned natural resources of which Irish farmers and beneficiaries received over €1.5 billion from the EU. Competitiveness accounted for €14.9 billion and cohesion only €8 billion. That was abnormally low due to the low level of accepted expenditure in 2017. Many member states did not submit any expenditure in respect of cohesion.

Until last year, our opinion on the regularity and legality of spending had been adverse, meaning we found widespread problems for every year since 1994. Now, for the second year in a row, we issue a qualified opinion on the regularity of the transactions, meaning a significant part of the 2017 expenditure we audited was not materially affected by error. Moreover, the level of irregularities in EU spending continues to decrease. The estimated level of error in payments during 2017 was 2.4%, down from 3.1% in 2016 and 3.8% in 2015. It could even have been lower because sufficient information was available to prevent – or detect and correct – a significant proportion of errors in, for example, rural development payments. If this information had been used by national authorities to correct errors, the estimated level of error would have been below the so called 2% materiality threshold for an even larger share of the EU budget.

Problems remain, and that is mainly where payments from the EU budget are made to beneficiaries based on their declarations of costs previously incurred, such as in rural development and cohesion. Other activities funded in this way are research, training schemes and development aid projects. In respect to Ireland, no real problems were detected for this period in transactions tested. There are, however, still a number of horizontal issues in the report which have implications for Ireland. Some of these may increase in importance given, among other aspects, the ongoing multiannual financial framework, MFF, negotiations for post-2020 and Brexit. In 2017, Ireland received roughly €1.81 billion worth of EU funds and at the same time contributed around €2 billion to the EU budget. That makes Ireland a net contributor of €244 million, which is 0.07% of Ireland’s gross national income, GNI. We are just about moving into the territory of being a net contributor. I stress this is an accounting balance exercise and obviously does not take into account the numerous benefits associated with EU membership.

Absorption is another important issue. By the end of 2017, the overall average absorption rate for the 2014-2020 MFF was only 16%, which was even lower than in the corresponding year of the previous MFF in 2010 where it was 22%. The good news is that Ireland is performing above average in absorbing European Structural and Investment, ESI, funds with 30% of cumulative payments of the planned ESI fund spent by the end of 2017. Ireland is third highest in absorption in the EU after Finland and Austria. Nonetheless, the absorption rate in Ireland in 2017 is still six percentage points lower than it was at the same time in 2010 in the previous MFF. The EU budget continues to face significant pressure owing to the value of payments committed for future years, the so-calledreste à liquider, RAL.

The overall financial exposure of the EU budget has also grown, with significant long-term liabilities, guarantees and legal obligations. I refer to the almost full use of the amount available for commitments, combined with the low level of payments and increased outstanding budgetary commitments to a new record of €267.3 billion. That is over twice the annual budget of the EU. In respect of Ireland, we are performing relatively well compared to other member states. We had outstanding commitments of €926 million at the end of 2017 and during 2017 we had payments of €297 million. Our outstanding commitments represent 1.2% of Government expenditure. It is not such a significant issue for Ireland when we compare that to some of the other member states where outstanding commitments represent over 20% of Government expenditure.

From our testing of 703 transactions, we found 13 instances of suspected fraud, which the court reported to the EU anti-fraud office, OLAF. These were the main findings of our annual report. Another useful output we provide are special reports. These relate to topics across all policy areas. They do not concern legality and regularity but are related to performance audits and look at aspects of economy, efficiency and effectiveness of policy implementation. In 2017, 28 such reports were published and the estimate for 2018 is about 35. While Ireland is not always included as a sampled member state, because generally five member states are covered in each report, there are often lessons learned and best practices identified which are of a horizontal nature. In 2017 and 2018 there have been three special reports in which Ireland was visited, namely youth unemployment, broadband and public private partnerships. In respect of agriculture, while Ireland is not directly sampled, some interesting reports were published including on rural development programming, greening, the basic payment scheme, a briefing paper on the future of the Common Agricultural Programme, CAP, and the recent opinion on new system of own resources of the EU.

Upcoming reports relevant for Ireland include an opinion of the court on the Commission's CAP proposal. Other upcoming reports with a more general public interest are EU passenger rights and the EU system of measuring vehicle emissions. We have a broad range of policy areas in which we issue reports. I thank the committee and we look forward to answering any questions the members may have.