Mr. Tony Murphy:

It is a pleasure for me to be able to present the work of the European Court of Auditors here today. I am hoping that we are slowly but surely moving back to the usual situation whereby we could give this presentation physically in the committee room. Hopefully that will happen near future. Among the work that I would like to cover today is the annual report, which is the main product of the European Court of Auditors. I am here today in my capacity as the Irish member, dean of chamber V, which relates to financing and administering the Union and the ECA member responsible for the annual report.

Before I outline the main findings of our annual report, I would first briefly like to set out some key information and figures relating to Ireland in the EU. As members will be able to see on the slid on-screen, revenue for 2020 totalled at €174.3 billion. Ireland's contribution to this figure was €2.6 billion. Most of the contribution from Ireland is based on GNI. In fact, €1.9 billion of this contribution was GNI-related in 2020. The rest, more or less, comes from customs contributions and VAT-based contributions. Expenditure, on the other hand, totalled €174.3 billion. Ireland in this case received €2.2 billion in EU funding in 2020. To put this into context, while this figure of €174.3 billion is an awful lot of money, it represents only 1.1% of EU GNI. As we always say, that works out at approximately €385 for each EU citizen. As members will see, based on the figures of €2.6 billion and €2.2 billion, we have a net budget transactional balance of approximately €360 million. However, as we always reiterate, this transactional balance does not reflect all of the other membership benefits that Ireland has from being a member of the EU, with access to the Single Market obviously being the main one.

The next slide relates to the findings in our annual report. We basically gave a clean opinion of the reliability of the 2020 accounts. This has been the normal opinion for many years by the court. The novelty in this year's accounts was that the Brexit bill was specifically included. As members will be able to see on the slide, the liability of the UK was estimated at €47.5 billion. We gave a clean opinion on revenue. For the second year in a row now we have given adverse opinion on expenditure.

The level of error has basically stayed the same at 2.7%. As we explained in our previous presentation, the first thing we have to check is whether the level of error is below or above our materiality threshold of 2%. Obviously in this case it is above. The second question is whether it is pervasive, and in 2020 some 59% of our audit population was what we consider to be high-risk expenditure. Because of this we consider it to be pervasive, which leads us to give an adverse opinion.

Our audit population in 2020 was €147.8 billion compared with €126 billion in 2019, and 40.8% of this referred to natural resources. Cohesion is catching up at 32.8%. The reason for the increase as I said earlier is the 59% of high-risk expenditure in our population is linked to this increase in cohesion expenditure. To a large degree, for natural resources, direct payments are considered to be low-risk because they are entitlement based and we find very few errors there, whereas in cohesion, we have many issues such as procurement and state aid, infrastructure projects and so forth, and they are not entitlement based. Generally, there are some small areas where we have simplified cost options or lump sum payments. However, in general, they are costs and reimbursement related.

To give a quick overview, I have said our overall error rate was 2.7%. This varies from 3.9% in competitiveness, 3.5% in economic, social and territorial cohesion and around 2% in natural resources. Within natural resources we have direct payments which tend to be around 2%. Then we have rural development expenditure, which is equivalent in a way to the cohesion expenditure, and there we would have a rate higher than 2%. The overall average works out at around 2%.

There are different error types we find on the ground in member states. Some 45% of the error contribution is due to ineligible costs followed by ineligible projects, activities or beneficiaries. As I said earlier, we always have issues with procurement and state aid, so they comprise 19% of the error. A particular problem in 2020 was that lack of supporting documents became a bigger issue, because obviously we could not travel on the spot to member states because of the pandemic. We had issues in some cases getting enough documentation to support our conclusions.

In regard to Ireland specifically, on natural resources there are payments of €60.6 billion across the EU, and Ireland has received €1.6 billion, which is the tenth highest amount of funds from natural resources. Because of this it is quite a significant player in the natural resources field. It was part of the sample. We had 218 transactions from 19 member states on natural resources. Ireland represented four transactions. There was one finding from this sample relating to stock density requirements that led to a quantifiable error. For cohesion, there was no actual sample for Ireland. Proportionately, the money involved is quite small compared with other member states.

To look at how we compare, we come up with our figures, and through its discharge procedure the Commission also comes up with its own error rates, which it calls risk at payment. These are error rates based on payments the Commission has made that have not yet been subject to the control framework. They are still to be audited ex post. Generally, the Commission reports lower error rates than we do. We have 2.7% in 2020 whereas it has around 1.9%. There are reasons for these differences although it can be confusing at times. Our objective when giving an error rate is to give a representative indication of the level of error across the EU budget, whereas the Commission's objective is to try to identify corrections that may be due from member states.

As auditors we must have what we call professional scepticism, so while we are not fraud investigators, within the Commission, the European anti-fraud office, OLAF, is responsible and has now been supplemented by the European Public Prosecutor's Office, EPPO, in Luxembourg. Where we are auditing transactions, if we find anything we think is suspicious, we forward it to OLAF or, in future, to the EPPO. We are not fraud investigators and we would not want to compromise any potential future investigation. Based on our audit work, between 2011 and 2020 OLAF has recommended the recovery of a total of €536 million relating to 37 cases that we have forwarded to it. We now have an administrative agreement signed with EPPO in Luxembourg, and that commenced in June 2021.

On the annual report side, we had a clean opinion on the reliability of accounts and for revenue. The estimated level of error is material at 2.7%, which is the same as in 2019. The same issues arise in that nothing much has changed, as weaknesses in the ex postchecks remain. This is what leads to the errors being found. There is a high-risk subpopulation of expenditure which concerns 59% of our audit population. Because of this level of high-risk expenditure, a substantial amount of the expenditure is affected by this material level of error which leads us to an adverse opinion on expenditure.

The annual report is the main product of the European Court of Auditors, but in addition to that we carry out audits on selected topics across a broad range of EU activities. In 2020, we published 26 such special reports covering topics such as food safety policy, renewable energy, e-commerce and border controls. In 2021, we published 23 special reports out of a provisional 34 that were planned. There have been delays linked to the closure procedures because of the pandemic. For the 2021 published reports, Ireland was specifically covered in four: milk and dairy production; long-term unemployment; Common Agricultural Policy, CAP, and climate; and cross-Border programmes. Ireland featured as a sampled member state in four of the 23 published reports.

In regard to upcoming reports, GNI verification is one where Ireland is covered. One which will be of general interest is the procurement of vaccines for Covid-19 throughout the EU. Another which will be of very general interest will be fraud and the CAP. The one which will be published in September 2022 and which it is hoped will comprise some interesting information for Ireland because of the so-called the leprechaun economics, which we spoke of previously, will be the issue of how research and development expenditure is covered in national accounts. The idea is that the audit will cover the Commission's management and control systems for the verification and assessment of the GNI data transmitted by member states. This is important in calculating the GNI contribution that is subsequently payable to the EU budget.

Globalisation was a particular issue, which concerns the treatment of globalisation in national accounts. We have repeatedly made observations and recommendations in our annual reports. For example one is recommendation 3.2 of this annual report. In terms of how the process works, the ECA can set reservations which, if a reservation is made, leaves that aspect open for a number of years subject to the finalisation, and that can have an impact on GNI. It can set a transversal reservation concerning all member states and it has done this with a deadline of September 2022 for the globalisation issue. We will have to wait and see what the impact of globalisation is on the GNI figures for 2018 to 2021, if and when they need to be revised.

This is depending on the figures that are reported by the various member states. If they are revised, there would be recalculations due for GNI.

Another thing of interest is that there are many funds and programmes being launched by the Commission and available to member states. The main one is the recovery and resilience facility, RRF, under which Ireland is due to receive €915 million between 2021 and 2026. The plan includes three priorities: the green transition, digital reforms and transformation and social and economic recovery and job creation. Ireland has not yet requested pre-financing under the RRF. Normally, 13% of a country's total allocation can be drawn down as pre-financing once that country's plan has been agreed. The first instalment is due in quarter 3 of 2022.

Another relatively new source of funding for Ireland has been the support to mitigate unemployment risks in an emergency, SURE, financial support. This, again, is a crisis instrument. It is €100 billion at EU level. The objective is to protect jobs and incomes during the Covid-19 pandemic. As shown the presentation slide, in October 2020 requested €2.47 billion to address the Covid-19 outbreak, which was disbursed in March 2021. This was split as a €1.27 billion five-year bond and a €1.2 billion 25-year bond. The idea of the regulation is that the average time span for the borrowings will be 15 years, so the mix of five and 25 comes up with the average of around 14.8.

Another fund that is more important than the RRF in terms of monetary value is the Brexit adjustment reserve. There was a slight revision compared to the original proposal, and under that revision will receive approximately €1.165 billion in grant form over the period from 2020 to 2025. The objective is to mitigate the impact and the adverse economical, social and territorial consequences of the UK withdrawal. For Ireland, the Commission has already approved a total of €920.4 million in pre-financing. This pre-financing is not like standard pre-financing, where it is basically given up front; it is paid in three instalments over three years. In fact, Ireland is the biggest beneficiary of the Brexit adjustment reserve and will be the first member to receive its pre-financing. It was to have received the first instalment of €361.6 million on 15 December 2021.

That is just a flavour of the different funding that has become available or been disbursed to Ireland in addition to the traditional multi-annual financial framework, MFF, sources for natural resources and cohesion and competitiveness. I thank the committee for its attention and we are open to answer any question, comment or observation that they may have.