Mr. Tony Murphy:

I thank the Chair and members. I am happy to present the 2019 annual report of the European Court of Auditors as well as other relevant publications to them today. I would like to thank the joint committee for this invitation. It is a pity I cannot be there in person, especially as it is a new composition of the committee since I was last there. I would like to note that I am presenting exceptionally late this year. However, it is still a pleasure to be here virtually.

When I presented to this committee previously, I was responsible for the annual statement of assurance on cohesion policy in Chamber II, which is one of the major EU policy areas along with natural resources. Since that time I have been appointed the dean of Chamber V and the member responsible for the annual report. Chamber V deals with financing and administering the Union. In my role as the member responsible for the annual report, I am responsible for this product, which is the core product of the court.

As my time is brief, I would first like to speak about the 2019 key figures of the European Union and findings of the court’s 2019 annual report, as well as illustrating how Ireland features in this respect. I will then briefly touch on recently published special reports of the court. In addition to these, I will provide members with a glance of our published opinion on the Brexit adjustment reserve for which I was a reporting member. Finally, at the committee’s request, I will also briefly discuss the next generation of EU funding in relation to the ECA. I hope members find the information pack helpful. It provides more detailed information on the aforementioned topics.

To begin with the key figures for 2019, revenue totalled €163.9 billion, of which Ireland contributed €2.3 billion. Expenditure on the other hand was €159.1 billion and in this regard, Ireland received €2.1 billion in the form of natural resources.

As members can see from the maths here we are now a net contributor to the tune of about €200 million. To put this into perspective, I would say that this expenditure of €159.1 billion represents 1% of EU GNI and, as we often mention, it is around €350 for each EU citizen. The main takeaway from that is that Ireland is a net contributor with a total of €229 million.

I will move on to the 2019 annual report. As I said earlier, this is the core product of the court. We are required to give a statement of assurance which includes opinions on the reliability of the EU accounts and on the legality and regularity of the underlying revenue and expenditures. This is our obligation under the treaty, and these opinions are considered by the Europe Council and the European Parliament in the framework of the discharge procedure.

On our overall findings for these opinions, we concluded that the EU accounts present a true and fair view. Revenue for 2019 was legal and regular. Our opinion on expenditure however, is adverse. The reason for this is that we found a level of error in 2019 of 2.7% across the whole EU budget. Our materiality threshold is 2%. It was just a slight increase compared to the previous year but this is the first year in three or four years that we have had an adverse opinion. The reason for this was that we had a material error in a substantial part of our audit population. Some 53% of our audit population is what we consider to be high risk, and we had an error rate here of around 4.9%. On the basis of this material error in a substantial part of our population, we also had weaknesses in exposed checks and these obviously are a critical element of the control and assurance framework. This led us to give for the first time in a number of years an adverse opinion on EU expenditure.

Obviously, legality and regularity are very important, but performance is also an issue which we cover. For the first year in 2019, we issued a separate performance report where we tried to assess the Commission's systems in place for assessing the impact of the different EU funds in the policy areas. Legality and regularity are sort of a compliance audit where we check compliance, that the money is being spent properly and in compliance with the rules and regulations.

We also produce a number of special reports across a broad range of topics. In 2019 we published 25 such special reports. We had 26 in 2020, and so far this year we have published 12 out of a potential 40 which are planned to be published this year. They cover a multitude of topics such as food safety policy, renewable energy, e-commerce, border controls, fiscal governance and child poverty. Examples of how our reports can be used at the national level include, for example, our report, Combating Child Poverty for which I was the responsible member. It was mentioned in Dáil Éireann during a Private Members' Bill on child poverty.

In addition our report on energy efficiency was widely publicised in Ireland and considered in a call to review energy efficiency grant schemes. Our most recent published reports that include Ireland, both of which were published just last week, relate to climate and the CAP and to dairy market disturbances and the support provided by the EU to farmers. Ireland was a sampled member state in both of these reports.

In addition, yesterday we issued a Covid-19-related passenger rights audit. This may also be of interest.

Members of the committee were specifically interested in INTERREG. A report on INTERREG will be published tomorrow. Ireland was included, but only marginally, in the overall audit scope. It was part of an extended desk review and, as I said, the results will be published tomorrow. Other upcoming reports that may be of interest include: the procurement of vaccines for Covid-19, which is a topical issue; fraud and the CAP; migrant return policy; and INTERREG.

I will move on to the Brexit adjustment reserve. We are required to give opinions on draft legislation, when asked by legislators. We were asked to comment on the regulation that was being set up to implement the Brexit adjustment reserve, BAR. Our comments mainly related the exceptional architecture and design of the BAR. It was welcome in several ways in that it gave much flexibility to the member states and it allowed for a swift reaction to this exceptional situation. This was all positive. However, we wanted to raise that there was a risk that the proposed timing and structure created a lack of certainty. We also had specific issues that were more technical in terms of auditing accountability. The eligibility period has since been extended but we had some issues about how narrow the eligibility period was. There were other issues on eligibility of expenditure, reporting and evaluation.

The topic that is exercising the court at the moment is the NextGenerationEU, NGEU. If we take it with the traditional multi-financial framework, we have a total overall budget for the next seven years of €2 trillion. This is the largest stimulus package ever financed. The objective is to help rebuild a post-Covid-19 Europe. The effective management poses an immediate challenge for all stakeholders, including ourselves. The recovery facility accounts for 90% of the overall resources of the NGEU, of which Ireland should receive approximately €915 million. Compared to the multi-annual financial framework, MFF, the basis for payment is different. The basis for payment is conditional on the achievement of milestones and targets, rather than on costs reimbursement. It is, therefore, a big change from what was there in the past. It will cause many challenges for our audit mandate and scope. In that context, we are currently developing our audit strategy and approach for this.

To conclude, as auditors, we spend much of our time looking back, so I would like to close by looking forward. We are going through an unprecedented and difficult time. The EU is currently shaping its response to the current crisis with NextGenerationEU. As stated earlier, managing the EU's finances in a sound and effective manner will thus become even more important for all stakeholders, including the European Court of Auditors, ECA. My hope is that later this year I will be able to present our 2020 annual report in person, rather than virtually. For now, I thank the committee for its attention. We welcome any questions members may have.