Mr. Kevin Cardiff:

I thank the Chair. It is our pleasure to be here and present to the committee. This is my fifth time to appear before it. In the first year of our engagement we did not visit the Houses but, rather, the previous committee visited us, and there is a standing invitation for the committee to visit the Court of Auditors if it has the opportunity to so do. The Court of Auditors has a policy of trying to gradually deepen our engagement with national parliaments, some of which, such as this one, are interested in doing so although one or two others are less interested in doing so. However, that is our policy and we are quite happy to engage with the committee at almost any time and in any way that suits it.

As members know, the European Court of Auditors is the independent external auditor of the European Union. We have three roles in that we consider the accounts of the European Union, whether the spending has been legal, regular and in accordance with the rules and whether the spending has been effective. In other words: are the accounts right, was the money spent legally and properly and did it have the intended effect. Our annual report, which is on the budget of the European Union rather than our activities, mainly concerns the first two issues.

We have a number of products, including the annual report we are going to discuss, opinions on issues such as questions by the European Parliament on new legislation, special reports about effectiveness and annual reports on not just the Commission but also the various European agencies. As members know, there are over 40 European agencies and eight or ten joint undertakings and so on. That is all within our remit. We also compile an annual activity report on our work, although we are not here to discuss that.

The current annual report on the budget of the European Union relates to 2016. The European Commission produces its accounts in the middle of the year and we then have two or three months to prepare the annual report. Our report on the Commission's accounts for 2016 was published in October. We gave a clean opinion on the reliability of the accounts. If this was a company audit, we would stop at that point, conclude that the accounts are a true and fair account of the business and walk away. However, we also consider whether all the transactions were legal and regular.

As regards revenue transactions, involving money taken in, there was no question of irregularity and everything, taken as a whole, was legal and regular, as has been the case for many years. As regards expenditure transactions, there has been a sustained improvement in the level of error we have estimated in recent years. In 2016, it was over 3% but in previous years it had reached up to 7%. In 2015 it was 3.8% and in 2014 it was 4.4%. Members can see there has been some improvement in that regard. In 2016, a significant part of audited expenditure, that is, on entitlement programmes such as the single farm payment whereby people receive a single payment or a payment as of right, was not affected by a material level of error. We could not find sufficient errors to deem worthy of reporting. For the first time since we began to provide a statement of assurance in 1994, we issued a qualified opinion. We said that for this part at least, the error level was sufficiently low that it need not be worried about, but, unfortunately, there were some errors in another part. Members can see a graph on screen which displays a trend. Members can see we work within a certain level of confidence, similar to an opinion poll that allows a margin of error of plus or minus 3%. We also work within those parameters. However, the trend seems clear.

Entitlement payments are not a big problem. Spending under the natural resources heading formed the biggest part of direct aid to farmers and there was an estimated level of error of 1.7% in that regard, which is below our threshold. The level of error in respect of administration was 0.2%, which is below the threshold. The levels of error in respect of reimbursements such as rural development programmes, cohesion programmes and so on, whereby individuals do something and then have to go back and claim for it, are far higher, being close to 5% in respect of rural development, for example. We stated there are still problems that the European Commission needs to address in respect of that part of the audit.

Members can see where the money is spread, involving expenditure of €15.2 billion on competitiveness, €36 billion on cohesion and €58 billion on natural resources, which is still the biggest area and of which rural development accounts for €14 billion. Global Europe, which accounts for all of the European Union's interaction with the wider world, including neighbouring countries, involved spending of approximately €8 billion. There is spending of €63 billion on entitlement and administrative payments and the level of error in that regard is low. We will be focusing our future efforts on reimbursement payments, which still involve a relatively high level of error and require further attention.

I will not address in too much depth the slide that is currently being displayed because it is a little too detailed but members have the provided literature and can see the error rates in each specific area. Revenue totalled €150 billion. EU revenues derive from a number of sources, including a portion of VAT collected by national governments, which is then passed on to the EU.

Customs duties are mostly EU duties. Each Government keeps a proportion of the customs duties as payment for administering the system. However, the bulk comes from a payment made by each member state that relates to the economic activity in the country. The more economic activity a member state has, the more it pays. For Ireland, this is something of an issue. If we mis-measure or if the gross domestic product and gross national income measures are not shown to have the same relevance to Ireland as to other countries, it does not matter: we still pay according to the GNI figures and not separate Irish measures.

I will run through the slides quickly. Members can see the areas of greatest spending. For Ireland, it depends a little on what we count but we have paid out more than we have received in recent years. Since we joined the EEC, as it was then, we have received more, sometimes a great deal more, than we paid in. Now, we are a little into positive territory and we are net payers. The greatest share of our spending is under the natural resources heading of agriculture and rural development. As members can see, were it not for that number we would be big net payers. The reason we do not get moneys under cohesion, for example, is because our level of economic development is far higher than in many countries to the east and south east. Such countries probably need that funding a little more. All member states pay in according to GNI. Ireland contributes approximately 1% of the total.

Each year for the annual report we send auditors, literally, all over the world. They spend thousands of days of audit time in total, mostly in European countries but in other countries that receive EU money as well. They track and test individual transactions that are taken on a random basis from the whole. It is like a sampling approach. We do not make findings about specific countries. This is because even if we have thousands of transactions in total, there might only be eight or ten transactions for Ireland. We cannot really reach conclusions about a country on the basis of ten transactions but we can reach conclusions about the whole system on the basis of thousands of transactions.

The overall picture is that the levels of errors and problems in member states and the European Commission have been decreasing. The European Court of Auditors believes it has to reflect that improvement by issuing a different opinion this year in respect of 2016 than for every previous year. The opinion is that for approximately half of the expenditure there is no material problem. However, for the other half there continues to be problems that have to be addressed.

For Ireland, a relatively small number of individual transactions have been tested in recent years and there is no specific problem. There are errors. They tend not to be major but they exist. However, compared to other countries there is nothing specific to say. Indeed, I recall saying for the 2015 report when I was here last year that we found no errors from eight transactions. In the random sample this year, there were only two or three transactions for Ireland. There was an error but it was nothing that would make my hair stand on end or make me think there is anything special about Ireland.

That is it, really. We can conclude there, save to say that I will explain who we have here today. Tony Murphy has come along because he is the new member designate. Mr. Wojciechowski is here. He is the Polish member of the European Court of Auditors. He is an agriculture expert and a former member of the European Parliament Committee on Agriculture and Rural Development. He is also a former auditor from Poland. Since we had an engagement with the agriculture committee this morning, it was useful to have him present. He presented two of his special reports. That is something we can do for this committee as well if members so wish. We can present special reports as well as the annual report. Mr. Enright works with me. Mr. Welsh is a combination expert. He deals with agriculture now but until recently he was the court's leading expert on the annual report. If there are any really hard questions, I will probably ask him to answer them.

I wish to draw the attention of members to two audits we have completed. I was in charge of them and that is part of the reason I am so close to them, but they are important for Ireland. It is ten years on from the start of the banking crisis. Europe has done a great deal to try to address these. The European Court of Auditors has been looking at the systems that the euro area has set up to deal with banks in crisis in future.

I commend these audits to the committee as work that might be worthy of consideration at some later stage. We find that the systems in place are better and new but that there are still some important technical issues that might hamper them in a future crisis and as a result they should be addressed. In fairness, the two bodies concerned have said they will address them.