Mr. Kevin Cardiff:

I suspect tens of millions at least. I imagine what happens is that the Commission sets a very high number and the Irish authorities set what they would see as the realistic number, and there is a discussion on that.

Last year we noted to the members that the commitments in the budget were growing. In other words, in every year, as with anybody, certain cash payments are made but certain commitments for the future are made also. The European Court of Auditors has a concern that over time the future commitments are growing. We regularly recommend that the European Commission should produce more focused, extensive cash flow projections so that it can keep control of this small risk.

We also know that this year, spending in the 2007 to 2013 programming period - this report was in respect of the last year of that - tended to be focused on absorption. In other words, when member states receive money the last thing they want to do is hand it back to the EU so they could find a way to spend it but sometimes there is pressure to spend it even where the rules are not fully followed or, more likely, where the actual objectives of the particular scheme will not be fully met by the particular spending.

I will show the members the trajectory over the years. In the mid-2000s the figure was very high at 6.9%. In fact, in 2006 it would have been even higher. It has been relatively stable in the past few years at 4.7%, 4.8% and 3.9%. We give a point estimate but as with an opinion poll it is this number plus or minus an amount, and the upper and lower level lines show that.

Therefore, it could be said that the rate has been relatively stable for the past two or three years.

In regard to the 2% rate, which is what we say is material, we do not decide what is acceptable. It is the European Parliament and the Council which are the discharge authorities and they decide whether they accept that or not. Whether a 5% level is either a good achievement or a bad achievement probably depends on the particular scheme. In other words, some schemes are very difficult to control while other schemes are less difficult to control.

I will move on to the issues that tend to be of more importance in Ireland because we are net receivers. In the rural development area, most issues come from non-compliance with eligibility requirements for particular schemes or projects, especially in regard to agri-environment commitments. When one receives money in the rural development area, there is very often a commitment to particular agricultural practices which have to be met, and there may be specific requirements for investment projects which are sometimes not met or there are procurement rules which are sometimes not met. Some people ask whether that means there is a lot of waste. In fact, in many cases it means that the money is not wasted in that the particular project the money is being paid over for may be carried through, but some of the conditions of that project, for example, that the member state will do X, Y and Z, may not be fully met.

We regularly find that if the member states had used all the information available to them, the error rate could have been maintained at a much lower rate - in theory, at 2% instead of at 6.7%. In practice, that would probably be very difficult to achieve but, nonetheless, it does show there is a scope for improvement at the member state level.

We are often asked whether this is all about fraud. It is not. Most of the errors we find are mistakes or failures to comply with conditions. We report some 14 suspected fraud cases to OLAF, the European Anti-Fraud Office, every year. In addition to those 14 cases, we would also pass on some cases that are referred to us in error by members of the public which were more appropriate for OLAF. After that, while we keep an eye on them, those cases are really for OLAF to follow up on from that point on, and sometimes also for the national authorities, which might also start a criminal case.

Those are the basics on the annual report. This year, we have been making a real effort to produce some other products. The year 2013 was the end of a seven-year programme period so we were trying to do a little bit more strategic thinking. We produced three or four projects this year that are aimed at looking back over the past few years and looking into the future with regard to what ought to be addressed by policymakers and what might be useful to policymakers from our work, by bringing together various aspects of our work.

Two of these products are called landscape reviews, which are overview studies that are not audits but are based on the experience and evidence we have collected in the course of audit work. The first of these, for which I was the reporting member, concerns accountability and public audit arrangements. In other words, we looked at the way the European Union accounts for its spending and activities, whether that meets reasonable standards and also whether the audit arrangements in place are reasonable. It turns out this is quite a big question.

In a way the system is quite simple, the European Commission spends most of the money and accounts for its activities to the European Parliament and Council, and the European Court of Auditors steps in to inform the process with our studies and work. It should be relatively simple, but although the European Commission is the principal spender, many bodies use European money and European legal frameworks to progress the European agenda. Approximately 40 separate agencies, banks and funds, including the European Investment Bank, the European Investment Fund, the ECB and the Court of Auditors, and the European Court of Justice spend European money.

Much of the European effort is done in partnership, with many types of international bodies or through PPP arrangements. A total of 80% of the spend is managed through national, regional and local authorities. The beneficiaries themselves have reporting obligations. I believe there are 12 million farmers and €8 million for the Common Agricultural Policy alone. The number of people who must account for their activities with European money is pretty substantial. The number of people to whom they must account is also substantial. We have 750 MEPs and ten different configurations of the European Council. There are also obligations to be accountable to national parliaments and we are all supposed to account to our people, who amount to 500 million. As with everything else, there are quite a few auditors in the mix, including ourselves and national audit officers. Some of the institutions have their own audit boards and committees or hire private external auditors and the Commission has internal auditors. There is a lot going on in this.

European Union accountability is itself a complex and very large industry. It would be no surprise to hear there are gaps and overlaps in the system. Many of these come from how the work of the EU is done. The EU co-ordinates activities happening at member state level, such as the Lisbon agenda and Europe 2020. Many of the actions under these are supposed to happen at member state level but the co-ordination and initiative is at European level. How does one account for this and who audits it? It is very fragmented. Similarly we have arrangements whereby some member states are involved and others are not, and Schengen and the eurozone are classic examples. Not all member states are involved, but the eurozone institutions go to the European Parliament to account for themselves. Many MEPs are not even in the eurozone or Schengen area. It creates a certain amount of complication. One can say it is fine and it works, but in the past year ten or 11 Ministers from various member states have said that perhaps eurozone accountability should be to a subset of the European Parliament. It sounds like it would be very difficult to organise, but the question is out there in the ether.

As I stated, much work is done through partnerships, through PPPs and with international institutions. The problem here is that audit tends to stop at the point where the funds are paid over to the project, but the partnership continues and does its work and it may not be as accountable to the European polity as if the Commission or a member state were spending the funds directly. There is a need, especially now with the big Juncker initiative, to ask whether, if we are to have these big partnerships, we will have ways in which parliaments can scrutinise them, and not necessarily just the European Parliament.

In the European Union institutional set-up there are inconsistencies and various levels of audit and parliamentary scrutiny according to the bodies. The ECB and EIB each have different arrangements based on their particular nature. The EIB the accounts to the European Parliament but does not have a formal obligation to do so.

However, it may not in all cases consider that it has an obligation to account nationally. Some agencies have audit arrangements that are different because they have their own cashflows and so forth. Those inconsistencies are not wrong but their continued existence ought to be at least considered and justified.

A big problem for audit and accountability, as we have seen, is that there are often errors and weaknesses in front-line governance of the moneys. If the governance is not right then obviously the information flow backwards will not be correct so there is an accountability deficit.

A lot of scrutiny and audit is about following the money which is reasonable but the impact of the EU is, very often, not about money at all but regulation, legislation, co-operation and so forth. All of those things are not easily audited or accounted for.

The system has got even more complicated with the financial crisis. We have more new bodies and structures with different arrangements, some of them outside the European Union framework altogether like the ESM. There are new uses being made of existing structures and new sets of rules. The public perception of the EU systems is damaged and is in need of repair.

Since national parliaments, European parliamentary scrutiny, national auditors and European auditors are all in this mix then there may be a need for at least a consideration of whether there should be more collaboration between those bodies. We need more consistent arrangements and where there are inconsistencies they ought to be justifiable. We need better member state level scrutiny to ensure that governance is done well close to the point where the money is spent. We need a better focus on results for the EU spend. That is a job for the auditors to work together to reduce the level of duplication of audit work. I mention some of that in part because the committee's work programme includes looking at the accountability of some of these EU institutions. We have done some work on the subject and it might be of some use to the committee. We might be able to guide the committee as to some of our sources if that is also of use.

One of my colleagues, along with a team, has done a landscape review on the risk framework for the financial management of the EU budget. He is looking at what are the big drivers of risks to the financial management. It is not that risks are being unnecessarily entered into, it is that in every financial system there is a set of risks which ought to be addressed and considered. Based on our audit work of the past several years, we have produced a survey of risks for financial management. The work provides a high level overview and these four risks, which Members can see before them, are the four key aspects. The document goes through each of the policy areas of the European Union spend and in the case of each of those policy areas it examines what are the key issues that might arise.

The project amounts to a financial management risk register for the EU which ought to act as an agenda for action for policy makers for the next several years. As legislation is being prepared and as the mid-term review of the next financial framework arises, policy makers should be able to take account of this very extensive document in order to guide their work to improve the governance systems.

Some of the factors leading to risks, eligibility rules and other conditions for receiving EU support are often not applied correctly. A huge issue is that public procurement rules and procedures are not applied correctly.

European public procurement systems are a terrible nuisance. They are complicated and it is sometimes difficult for bodies which are spending EU money to apply them. On the other hand, they serve a particular purpose, namely, to ensure that the free market operates, that national discrimination does not occur, that there is no inappropriate discrimination between the large and the small, and that there is no collusion on practices. If one stated that 25,000 bodies were engaged in applying these public procurement practices, one would reach the conclusion that the system is very complex. The number of organisations involved is not 25,000, it is actually 250,000. This means that literally millions of public procurement processes, which involve the use of EU money, are in train each year. The capacity for a system as complex as this to get things wrong is, therefore, large. However, getting it right also becomes a very important mechanism for driving the Single Market.

We discuss in our document to quite a degree the capacity of member state authorities to manage and spend EU moneys, and we also refer to the impact of the EU's budget on activities, cashflows and the commitments that are outstanding. It is a 100-page document and it would take some time to go through it. I do not plan to take the committee through it. However, I suggest that members take the opportunity to peruse it because they might find some matters of interest to them. The other document we provided contains a few tables and interesting facts at the end but I do not believe members need to read them for the moment.