Mr. Kevin Cardiff:

I am referring to a farmer over-estimating the size of his eligible holding. For example, a grazeable field in good agricultural condition will be eligible but if there are patches of woodland or rock that are not grazeable or if there is a permanent track, they should be deducted. When we go out and audit, we look at all those features and we say they have to be taken out, but we allow a 4% margin of error. We do not start to count something as an error until it is over-declared by 3%, so there is some subjectivity. Someone said to me today that something that is gorse at one point in the year might change over time. Nonetheless, it has been possible for the Irish paying agencies and their own auditors to make reasonably good assessments of these things. That is how we establish an error rate.

In fisheries and rural development as a whole, the largest source of error was non-compliance with environmental conditions. When one signs up for a rural development grant, there are requirements to do things in accordance with environmental rules. The most frequent error in that area is that those environmental rules are not complied with. There are cross-compliance requirements for direct payments which also give rise to errors. A typical example is that more phosphate or nitrogen than is allowable has been spread on a field or that buffer strips have not been respected. The buffer strip is the strip between a watercourse and a field that should not be sprayed at all. Those kind of cross-compliance events are regular. The rules will change and cross-compliance errors will no longer count towards our error rate because the financial regulations have changed. However, we will do a special audit of those to establish the effect of cross-compliance rules on the environmental element of the agricultural policy.

Europe is trying to do two things at once and it is difficult to achieve both. It is trying to support the farmer and the rural community while also ensuring that the environment is protected. When we looked at water courses and so forth we found that it is difficult to do so with one instrument - the single farm payment - by making it conditional on compliance with the various rules. We recommended that Europe needs more than just this one instrument. At present, as far as the environment is concerned, one of the biggest levers is the agricultural payments. It might be too much to ask of a single policy instrument to cover so many different elements.

However, we will be looking at that issue in an audit shortly.

In the area of economic, social and territorial cohesion, this type of spending often involves purchases of large services infrastructure, such as roads and that kind of thing. In this area, unlike the agriculture area, the largest source of error is non-compliance with procurement rules. If we are spending European money, we have to apply both European rules and, legally, the national procurement rules. Many of the errors that are found are simple errors in procurement. Both EU rules and national rules are complex, and it is all very inconvenient for the beneficiary. However, if we think about it, countries like Ireland may be huge exporting countries that export goods but also services and rely on access to markets in other parts of Europe. For example, if Irish construction firms want to do business in Poland, they are entitled to get the same access to that market as the Polish, so the procurement rules have to work. In this case, it is not about whether the money was spent as intended, in that it will still be spent to build the road, but whether it is being spent in accordance with the procurement rules to support the Single Market and whether it is a true common market. That is why these rules are particularly important.

In the area of competitiveness for growth and jobs, where there is a lot of social spend, we found that incorrectly calculated personnel costs and unsubstantiated claims for travel, where people are paid to travel back and forth, contributed to the errors, and this was especially the case with small and medium enterprises. In the court, we say there is a need to simplify the system in order that the SMEs can cope with it, and the Commission says the same. Everyone is striving to find the balance between simple systems and controls that work while ensuring the people who get the money are spending it in ways that are consistent with the purpose of the funds. For example, we found cases where trainers were being paid more than the approved rate and paid for more hours than they were fulfilling. There were reasonable explanations for that which had to do with the way the particular SME ran its normal day-to-day business and so forth, but it does not always happen that SMEs find themselves able to stick to the rules. If they do not stick to the rules, then Europe is overpaying for particular services, and that means some other beneficiary does not get the money.

Administration of the EU itself tends to be relatively simple and it is the only area of spending which is consistently below the materiality threshold of 2%. There is still room for improvement, mainly in the process for paying allowances and salaries. When talking about administrative spend, allowances and salaries are a huge part of the total. Of course, in this annual report we are auditing the amounts paid on administration and how the transactions are done. We are not evaluating the product.