Mr. Tony Murphy:

I wish the Chair and members a good morning. It is a pleasure to be here representing the European Court of Auditors. I think it is the first time we have engaged with this committee. As members know, we have been trying for some time to broaden our outreach. We are called the European Court of Auditors and people think we just look at the accounts of the EU. We actually do an awful lot of work in the different policy areas and I think some of the outputs are interesting to the different committees.

As it is our first time presenting to this committee, I will give some background information about who we are and what we do because the European Court of Auditors is not a particularly well-known institution, even though it is one of the seven EU institutions. The court is the EU’s independent external auditor. If members wish to compare us, we are like the equivalent of the Comptroller and Auditor General for the European Union's budget. That is the best way to put it. We have a very broad mission, which is to ensure the effectiveness, efficiency, legality and regularity of EU actions and spending. We mirror the Commission, in a way. We are a collegiate body of 27 members, with one nominated from each member state. We are based in Luxembourg and we have a staff of roughly 950 people, who are representative of all the member states because obviously we visit the member states and we need people who have the linguistic skills to be able to do the audits on the ground. Due to the type of work we do, we have some accountants but not so many. We have people from a broad range of backgrounds, including economists, lawyers, scientists, academics and journalists. We need a mix of skills in our staff.

The principal output is the annual report on the EU budget. It is a bit like the C and AG's report that came out yesterday. Our main single report accounts for about 50% of our audit resources. In it we look at the legality and regularity of the revenue and expenditure of the EU budget and provide an audit opinion on the accounts. We will publish our annual report next week, on 9 October, and I hope to come back to some of the committees with the findings of that report later in the year or early next year.

In addition to this annual report, we publish about 30 special or performance reports. These reports address specific topics, some of which we will cover later. They examine specific spending programmes, policy areas and budgetary management issues, providing evidencebased findings and practical recommendations to improve value for money and accountability across the EU. They are used as an input for our two main stakeholders, the European Parliament and the European Council. They act on our findings to hold our main auditee, the European Commission, to account. Four strategic focus areas govern these policy areas. One is economic competitiveness, which I think will be of particular interest to this committee. Two of our upcoming reports will be upskilling of workers and reducing the regulatory burden on businesses. Another area we look at is security and defence of European values. Climate and environmental sustainability has been a big area for the past few years. There will be some movement between climate and environmental and defence going forward because we follow the work programme of the Commission and where it spends the money. The priorities are changing a bit now to competitiveness and defence. The final area is fiscal policy and public finances.

As I said, our main auditee is the European Commission. The reports are intended to inform national debates and support parliamentary scrutiny of both national and EU policies. This is mainly done via the budgetary control committee in the European Parliament, which is sort of the equivalent of the Committee of Public Accounts here. I would like to mention the special report on supplementary pensions, which I think was the initial request from the committee. We have a review on the future of EU cohesion policy which is a prominent topic at the moment given the new MFF proposal on the table from the Commission. We looked at the options for this post2027 multi-annual financial framework. Two earlier special reports were on LEADER, communityled local development and durability in rural development which I know are also of interest. They are older reports.

I will begin with our pensions report. I think we all have a vested interest in pensions because we will all get to that stage, or I hope we do anyway. It is important to set the scene and look at the bigger picture around public pensions across Europe. Europe’s pension systems face strong demographic pressures. Populations are ageing, the oldage dependency ratio is rising and in many member states statutory pension systems are under significant fiscal strain. In addition to sustainability concerns, pension adequacy remains a major social issue. A substantial number of older people are at risk of poverty. Against this backdrop, supplementary pensions - occupational and personal funded pensions - are widely seen as a necessary complement to statutory payasyougo pensions to preserve living standards in retirement and to diversify retirement income sources.

EU competence in pensions is quite limited. It is a national prerogative in the main. The design and financing of statutory pensions are primarily national responsibilities. The EU can act on cross-border mobility, consumer protection, the Internal Market and minimising requirements for institutions for occupational retirement provisions. It tried to introduce a framework for a pan-European personal pension product, PEPP, but this has not been a success due to different difficulties. There is also an agency in the EU structure called the European Insurance and Occupational Pensions Authority. We looked at whether it had been effective in strengthening the role of institutions for occupational retirement provisions, IORP, and in developing pan-European personal pension products. We concluded that given its mandate, which is quite limited, it has not been so effective to date. The IORP market has not deepened or become cross border and the PEPP has not become a viable pan-European saving option. The figures for PEPP are pitiful. It has been a complete and utter failure.

The three key findings from the report are that EU legislation has not increased crossborder activity, which was the intention, to make it easier for people to move their pension pots. It has not produced a panEuropean pension market. Crossborder activity remains minimal and concentrated in very few member states which have more of a history with this. Some EU requirements disadvantage crossborder providers. They create obstacles instead of the intended incentive. Supervision of IORPs and the assessment of specific and systemic risks are only partially effective. Despite the agency's convergence efforts, member protection and transparency initiatives have had limited uptake by national authorities and remain incomplete. EU actions to improve transparency and sustainability have had limited impact. Tools for tracking at EU level are still lacking and efforts to boost financial literacy and pension takeup have been weak. There is a broad range of areas that still have to be addressed. The Commission has an advisory role in trying to promote it but it is member states that have the primary responsibility.

We recommended that the Commission accelerate its assessment of low PEPP uptake. It has not worked so there has to be some replacement product. We also recommended it strengthen the supervisory framework and advance pension-tracking systems and dashboards. We also recommended that this agency focus its tools on those that best drive supervisory convergence because that is one of the big issues, improve systemic risk assessment and enhance transparency on costs and returns. That was also a major issue. There was not enough transparency on the actual costs incurred in the different schemes and returns.

Turning to the two reviews, one on cohesion policy and the other on the post2027 MFF, both published this year, I should start by saying a review is different to a formal audit. It is a descriptive analysis that draws together our previous audit work. It consolidates what we have done in these particular areas before and tries to bring them together in one place to give clear messages or directions we think could be followed. They are forward-looking and their timing is deliberate. We are now in the early stages of the new MFF. We hope the concerns or ideas we have might feed into the system and be taken on board by the decision-makers. We have been asked to produce opinions on the new MFF package which will take a couple of months. We will give it to the Council and European Parliament and it is up to them which elements they take on. It is not mandatory; it is advisory input.

Cohesion is a hot topic and very important in certain member states; perhaps not so much in Ireland any more. It needs to design cohesion objectives around the needs of each region to reduce fragmentation of priorities which is also a problem and to foster synergies with other directly managed programmes. Cohesion is a shared management programme where the Commission and member states share the responsibility and other programmes are directly managed by the Commission. Sometimes there is not synergy or there can be duplication between the two. The big words at the moment are flexibility and simplification. Everyone complains that EU funds are difficult from an administrative burden point of view. In terms of the budget, it needs to balance longterm priorities with adaptability to crises, simplify reprogramming if and when necessary, and rationalise reimbursement rules. It also needs to preserve accountability and use simplified cost options. It would ideally make it easier for beneficiaries to not have as much red tape and documentation to provide. On absorption and performance, it needs to adopt the legal framework early because it tends to take a few years for an MFF to go live.

On the 2021-27 MFF, hardly any funds have been drawn down across the whole EU which leads to problems at the end when there is big pressure to spend money, which is not the most ideal scenario.

It needs to speed up the programming and ensure it has adequate prefinancing which will allow member states to start. It also needs to align reforms with investments because that has been a new element of the recovery and resilience fund where we now have reforms linked to the funding for the first time, I would say.

On the next MFF, again it is about simplification. We think they need to streamline the financial landscape, which is very complicated. There is a vast number of programmes. In the initial proposal it is proposing to reduce the number of programmes from 52 to 16, which is progress. It needs to simplify public procurement, which is extremely complicated. It is always a difficult area to audit and is where we find a lot of errors. Second, we think they need to have a budget that delivers on the policy priorities. It needs to ensure reforms, consider the specificities at national and regional level while guaranteeing equal treatment because that is one thing we saw with the RRF, where it may have been more difficult to have an equal playing field and treat member states on the same level.

Those are very important but particularly in our remit is the financing of the budget. There needs to be clear borrowing needs, how they are going to repay these borrowings, and they need to come up with a known resources proposal which is acceptable. The last one did not fly and I do not think the one in the new MFF will fly either. It needs to improve the comparability of data. On accountability arrangements, which is our key area, they need to make sure that there is accountability and transparency in respect of all EU finances. We are fully behind full democratic oversight because what we see in the EU is a lot of programmes being set up outside of the traditional EU budget which means we do not have an audit mandate so there is less democratic scrutiny involved. That is another area to note.

The idea of these reviews is to try to inform the next MFF process which is just under way and will still be a huge issue for Ireland during its EU Presidency in the second half of next year. As I mentioned previously we are preparing opinions at the moment. We have been requested by both the Parliament and the Council. They have asked for them by the end of the first quarter of 2026 but we will try to issue them as soon as we can when they are ready.

Finally the last two reports, which are a bit older, have a rural and community focus. They are both from 2022. I will give a very brief overview. LEADER is basically the EU’s participatory bottom-up approach involving local communities and project development and decision-making. It entails additional costs and risks compared with mainstream top-down programmes. We assessed whether LEADER delivers benefits that justify those extra costs. It was follow up to an earlier report we did in 2010, as it were. While we found LEADER had improved in some areas and clearly facilitates local engagement, evidence remains limited that its benefits outweigh the costs and risks. We therefore recommend the Commission carry out a comprehensive evaluation of LEADER’s costs and benefits and reassess the community-led development approach.

In the special report on durability in rural development we found that while most projects met contractual durability requirements, longterm sustainability varied by member state. In many member states, as soon as the contractual period was over the project ceased so there was not that durability for the legal requirement to have the funds. We also found weak economic performance and that illegitimate private use has undermined some results. This is particularly in the construction of tourist accommodation which was then used privately, for example. In that context we recommend better targeting of funds to viable projects, stronger selection criteria and business models which justify these projects. They have to make sure there is proper followup of projects to ensure they survive and are not just a short-term set up for funding which then just stop. One of the biggest problems we have is getting the right data. We need access to data in the member states so we can do a proper overview and compare across member states.

This was just an overview. It is our first time here. We wanted to give an idea of the different types of reports we produce across different policy areas. It is becoming more and more important because, as members will know, Ireland is now a net contributor to the EU budget and will become an even bigger contributor going forward. In the past there has been a lack of concentration on the use of EU funds because it is just EU funds and we benefited more than we paid but the figures involved now are quite substantial and it is proper that we examine it. Part of this money is Irish taxpayers’ money. The contribution that goes to the EU budget is Irish taxpayers’ money. Ireland has an obligation to repay some of the borrowing which has been engaged in by the Commission in relation to the next generation too. It is not all just free money. This has to be paid back at some time. This is where the EU is at the moment. It is really at a crossroads because it has many priorities with which it wants to engage but it does not have the money. The EU budget is 1.26% of GNI* - that is the proposal in the new MFF. It is €2 trillion. That is a lot of money. Some member states are against any increase and want that to be decreased. On the 1.26%, 0.11% of that is just to repay the borrowings for the NGU. It is around €30 billion a year. We kept saying that it was not really good budgetary management. It was borrowing this money and okay, it is guaranteed by the member states, but it had no dedicated income stream to repay these borrowings. The own resources proposal fell. That was its idea at the time. The issue on the table is does it try to get member states to pay in more. I think that will be difficult as under the current circumstances many member states are already in dire straits themselves so there will not be a big appetite there. Do they increase borrowing, which just kicks the can down the road, in a way, or does it cut back if it wants to branch out into enlargement, Ukraine, defence or whatever? In that case the traditional policy areas will, by default, suffer, whether it is cohesion, agriculture or whatever. It is only one cake and you can only cut it into so many slices. That is an overview of where we are at the moment.