Mr. Kevin Cardiff:

I remind committee members that we need to leave at approximately 3.45 p.m. in order to catch a flight.

Deputy Seán Crowe and Senator Aideen Hayden asked what was the reason for the ever increasing error rate. That is a difficult question to answer. Some errors are due to changes in methodology.

They simply change because the European system itself is changing. Therefore, from time to time we need to take a step back and ask whether we are measuring correctly. Whenever we change the methods we use, we calculate how much impact it is having in order that it is transparent. We know that the increases this year and last year, taken together, are no more than approximately 0.3% due to our methodological changes. People, including those in the committee and the European Parliament, can then see that it is still going up, but they can allow a little for that.

There was a question about the sampling approach and how we decide on sample size. We get a group of statisticians to decide how many beneficiaries we must sample in a particular area to have a reasonable prospect of stating that when we have a number for the error rate it is correct within reasonable limits. It is simply a statistical calculation.

How do we pick beneficiaries? We sample the euro, not the beneficiaries. For example, we pick the beneficiary who got the 35,300,000,206th euro because that comes up in the sample. That euro is the key. The person who got that euro and the entire transaction that the euro in question represented is sampled. When we examine a single transaction, it relates to a single EU transaction and the money going to the beneficiary. However, that might require an audit of 20 transactions in which the beneficiary engages in turn. It is rather extensive. The sample is in the thousands; we are not dealing with a couple of hundred cases. To get reasonable sample sizes for each policy area we must get into the thousands. For each country we have to get into tens of thousands of transactions. We simply cannot get there.

Everyone is interested in public procurement, and rightly so. What is the best way to ensure it is fair and effective for everyone? Ironically, in some ways, the best way is probably not to play favourites with smaller or indigenous firms. Let us consider why. If we do not have a fair system then the people who will take advantage of unfairness are probably not those from small indigenous firms. The European rules are quite specific about the market being open to all who are qualified to provide to the market. That openness is supposed to start from a relatively low level, from €130,000 or thereabouts. The full European procurement rules, including tendering and openness and so on, start at a low level. We were asked what we would do about exploring this a little more. We are making several efforts. On the agricultural side, we are starting an audit on cost reasonableness - in other words, the reasonableness of costs incurred by beneficiaries using EU money and, therefore, their procurement of services. Some of my colleagues in other areas are going to do a larger study of procurement systems at EU level. In part, this has been prompted by the European Parliament, which is concerned about some of the large procurement projects and how much might or might not have been lost due to inadequate procurement policies.

The question of failure to fulfil conditions and Irish companies having difficulties with receiverships and suppliers and so forth was raised. To my knowledge, we have not examined that. It is a feature of the rules of some European schemes that the suppliers must have a reasonable prospect of completing the service. Occasionally we might come across these cases, but as a subject we have not examined it.

The question of European states' involvement in conflict and so forth was raised. Europe spends large amounts of money in some of the most conflict-ridden areas of the world. The objective of the spending is political, or it is a policy objective. Usually, it is about genuinely trying to support and help people in a particular region. However, it is also about the application of European foreign policy in the same way as other power blocs apply their foreign policies. At the European Court of Auditors we examine when the money was spent and whether it was spent according to the objectives laid down. Sometimes our findings on whether the objectives were met are not really convenient for all policy makers, who want to feel they are having an impact but perhaps do not want to know or hear, in all cases, that the money they spend, for good reasons, is not being used as effectively as it could be or for the best purposes. It is something of a conflict for us. We consider whether we might turn people off or end up in a situation whereby, because we find that spending was not effective, the result might be that spending which would be very helpful in a region is not allocated. To be honest, we resolve that conflict by saying that we are auditors. We audit. If we find things, we say it. It is not that we go looking for errors that are not there, but if we find errors, even in countries that desperately need the money, then we say we have found errors. We realise, as auditors and as human beings, that we cannot expect the same standards of governance in the middle of a war zone as one might expect in a mature European state. No one is suggesting that the standard should be astonishingly high for that type of spending.

Deputy O'Reilly asked questions about innocent people involved in mapping and so forth. We do not set the rules; we merely report what we find. Sometimes we make recommendations, some of which might be in favour of the people Deputy O'Reilly referred to and some of which may be against. For example, when we make recommendations on the CAP and its shape, we say the penalty should be more or less proportionate to the offence. Small errors should have small penalties, including repayments and so forth, and for bigger errors there should be bigger penalties. Sometimes a person can make a major error but it is still a mistake; it is not necessarily a deliberate thing. The question of whether such a person should be penalised arises. Mostly, in such cases the first penalty is reimbursement. The thing is set back to the point at which it should have been. Generally speaking, it is not that people are being asked to pay criminal penalties. Mostly, the money that ought not to have been paid is recovered. At the same time, we have been encouraging the simplification of schemes to make them easier and to make it less likely that errors will arise. The new simplification for small farmers will be an interesting experiment. We will be watching closely to see whether it actually leads to fewer errors. Certainly, they will have far fewer cross-compliance-type requirements to meet. Therefore, in those areas at least they should have some additional comfort. It will not affect the issue of over-claims, because either an area is over-claimed or it is not.

I will address Deputy Durkan's questions next. I have dealt with the question about the punishment being severe. We do not identify individual culprits or countries in the fisheries area. Two and half years ago we carried out a major audit on the fisheries policy. We made some rather trenchant remarks, including comments relating to the dangers that arise when what an organisation is requiring of people and its policy ambitions do not align well. Sometimes that has been a problem in fisheries policy. For example, we referred to the throwing back of fish, discards, and what that means for a policy of conserving fish stocks and such matters. I believe we had some impact in that area. I know the discard rules are changing in 2015 or thereabouts.

There was a question about health issues and smaller companies. We would never suggest that any health standards should be weakened to let small companies in, but I realise the Deputy was not really suggesting that. The question related to services to hospitals and so forth.

We audit according to the current rules. We sometimes make recommendations on simplification of the rules but we would never make a recommendation that would favour small businesses on one side of a border. We operate within the treaty and such favouritism would be contrary to the European treaty.

We see a huge range of breaches in public procurement. Let us go back a little. In our system, a serious procurement error must be quantified as such. In order to be regarded as serious it has to be a procurement error that seems to have undermined the whole process, in effect. When we see that, however, we have no way of saying exactly what the financial impact is. When we see a serious error we count the whole amount as if it was in error. It might therefore be a little bit over-represented in that sense. On the other hand, most of the procurement errors are minor. We do not count those at all because they are not having a big impact on the European budget. There is a huge range and it is as simple as that, but there are many more errors than are reflected in the statistics. These things are quite difficult and we do not count minor breaches at all when we are calculating the error rate. We ignore them for that purpose. We count them in the total number of errors found but not in the error rate, as such.

I will let Mr. Lok deal with the question on commitments and their regional nature. The commitments issue is particularly important. The annual report stated that there is a mismatch in the European budgets. There is a certain cash budget each year but there is also a big stock of moneys that have been pre-committed. That runs the risk of creating an imbalance. We see it from time to time. The Commission will explain it differently to us, but in any given year so much money has been pre-committed that it leaves relatively little room for discretionary manoeuvre in changing policy and so forth. The Commission sees it differently. It says it has a particular budget and spends that much cash each year, but sometimes the Council and the Parliament say that Europe is strapped for cash and therefore they must hold back on cash spending, which means that the pre-committed spending takes precedence. Maybe Mr. Lok will deal with that matter.