John Paul O'Shea (Cork North-West, Fine Gael)
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I wish everyone a good morning. Apologies have been received from Deputy Ardagh. Deputy Aird will be a bit late. The first matter on the agenda is engagement on matters relating to the European Court of Auditors' special reports and reviews on social protection and rural development issues.

I must read a note on privilege before we begin. I advise members of the constitutional requirement that members must be physically present within the confines of the Leinster House complex in order to participate in public meetings. I will not permit a member to participate where he or she is not adhering to that constitutional requirement. Therefore, a member who attempts to participate from outside the precincts will be asked to leave the meeting. In this regard, I ask members participating via MS Teams to confirm that they are on the grounds of Leinster House prior to making their contribution to the meeting.

Members and witnesses are reminded of the long-standing parliamentary practice that they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable or otherwise engage in speech that may be regarded as damaging to the good name of the person or entity. Therefore, if their statements are potentially defamatory in relation to an identifiable person or entity, they will be directed to discontinue their remarks. It is imperative that they comply with any such direction.

I remind all those in attendance to make sure their mobile phones are switched off or in silent mode.

With us is Mr. Tony Murphy, President of the European Court of Auditors, Ms Emily Davis, secretary of Mr. Murphy's cabinet, and Mr. Brian Murphy, attaché to the cabinet of Mr. Murphy. The witnesses are very welcome and I thank them for accepting our invitation to attend. The committee welcomes the opportunity to engage with Mr. Murphy as president. I also congratulate him on his recent reappointment to another term as president and to celebrate the 50th anniversary of the European Court of Auditors. The court is active in undertaking key studies and issuing publications. The committee looks forward to engaging with Mr. Murphy on several reports that refer to issues of relevance to both the social protection and rural and community development domains at EU level, but which also have impacts on Ireland.

I invite Mr. Murphy to make his opening remarks.

Mr. Tony Murphy:

I wish the Chair and members a good morning. It is a pleasure to be here representing the European Court of Auditors. I think it is the first time we have engaged with this committee. As members know, we have been trying for some time to broaden our outreach. We are called the European Court of Auditors and people think we just look at the accounts of the EU. We actually do an awful lot of work in the different policy areas and I think some of the outputs are interesting to the different committees.

As it is our first time presenting to this committee, I will give some background information about who we are and what we do because the European Court of Auditors is not a particularly well-known institution, even though it is one of the seven EU institutions. The court is the EU’s independent external auditor. If members wish to compare us, we are like the equivalent of the Comptroller and Auditor General for the European Union's budget. That is the best way to put it. We have a very broad mission, which is to ensure the effectiveness, efficiency, legality and regularity of EU actions and spending. We mirror the Commission, in a way. We are a collegiate body of 27 members, with one nominated from each member state. We are based in Luxembourg and we have a staff of roughly 950 people, who are representative of all the member states because obviously we visit the member states and we need people who have the linguistic skills to be able to do the audits on the ground. Due to the type of work we do, we have some accountants but not so many. We have people from a broad range of backgrounds, including economists, lawyers, scientists, academics and journalists. We need a mix of skills in our staff.

The principal output is the annual report on the EU budget. It is a bit like the C and AG's report that came out yesterday. Our main single report accounts for about 50% of our audit resources. In it we look at the legality and regularity of the revenue and expenditure of the EU budget and provide an audit opinion on the accounts. We will publish our annual report next week, on 9 October, and I hope to come back to some of the committees with the findings of that report later in the year or early next year.

In addition to this annual report, we publish about 30 special or performance reports. These reports address specific topics, some of which we will cover later. They examine specific spending programmes, policy areas and budgetary management issues, providing evidencebased findings and practical recommendations to improve value for money and accountability across the EU. They are used as an input for our two main stakeholders, the European Parliament and the European Council. They act on our findings to hold our main auditee, the European Commission, to account. Four strategic focus areas govern these policy areas. One is economic competitiveness, which I think will be of particular interest to this committee. Two of our upcoming reports will be upskilling of workers and reducing the regulatory burden on businesses. Another area we look at is security and defence of European values. Climate and environmental sustainability has been a big area for the past few years. There will be some movement between climate and environmental and defence going forward because we follow the work programme of the Commission and where it spends the money. The priorities are changing a bit now to competitiveness and defence. The final area is fiscal policy and public finances.

As I said, our main auditee is the European Commission. The reports are intended to inform national debates and support parliamentary scrutiny of both national and EU policies. This is mainly done via the budgetary control committee in the European Parliament, which is sort of the equivalent of the Committee of Public Accounts here. I would like to mention the special report on supplementary pensions, which I think was the initial request from the committee. We have a review on the future of EU cohesion policy which is a prominent topic at the moment given the new MFF proposal on the table from the Commission. We looked at the options for this post2027 multi-annual financial framework. Two earlier special reports were on LEADER, communityled local development and durability in rural development which I know are also of interest. They are older reports.

I will begin with our pensions report. I think we all have a vested interest in pensions because we will all get to that stage, or I hope we do anyway. It is important to set the scene and look at the bigger picture around public pensions across Europe. Europe’s pension systems face strong demographic pressures. Populations are ageing, the oldage dependency ratio is rising and in many member states statutory pension systems are under significant fiscal strain. In addition to sustainability concerns, pension adequacy remains a major social issue. A substantial number of older people are at risk of poverty. Against this backdrop, supplementary pensions - occupational and personal funded pensions - are widely seen as a necessary complement to statutory payasyougo pensions to preserve living standards in retirement and to diversify retirement income sources.

EU competence in pensions is quite limited. It is a national prerogative in the main. The design and financing of statutory pensions are primarily national responsibilities. The EU can act on cross-border mobility, consumer protection, the Internal Market and minimising requirements for institutions for occupational retirement provisions. It tried to introduce a framework for a pan-European personal pension product, PEPP, but this has not been a success due to different difficulties. There is also an agency in the EU structure called the European Insurance and Occupational Pensions Authority. We looked at whether it had been effective in strengthening the role of institutions for occupational retirement provisions, IORP, and in developing pan-European personal pension products. We concluded that given its mandate, which is quite limited, it has not been so effective to date. The IORP market has not deepened or become cross border and the PEPP has not become a viable pan-European saving option. The figures for PEPP are pitiful. It has been a complete and utter failure.

The three key findings from the report are that EU legislation has not increased crossborder activity, which was the intention, to make it easier for people to move their pension pots. It has not produced a panEuropean pension market. Crossborder activity remains minimal and concentrated in very few member states which have more of a history with this. Some EU requirements disadvantage crossborder providers. They create obstacles instead of the intended incentive. Supervision of IORPs and the assessment of specific and systemic risks are only partially effective. Despite the agency's convergence efforts, member protection and transparency initiatives have had limited uptake by national authorities and remain incomplete. EU actions to improve transparency and sustainability have had limited impact. Tools for tracking at EU level are still lacking and efforts to boost financial literacy and pension takeup have been weak. There is a broad range of areas that still have to be addressed. The Commission has an advisory role in trying to promote it but it is member states that have the primary responsibility.

We recommended that the Commission accelerate its assessment of low PEPP uptake. It has not worked so there has to be some replacement product. We also recommended it strengthen the supervisory framework and advance pension-tracking systems and dashboards. We also recommended that this agency focus its tools on those that best drive supervisory convergence because that is one of the big issues, improve systemic risk assessment and enhance transparency on costs and returns. That was also a major issue. There was not enough transparency on the actual costs incurred in the different schemes and returns.

Turning to the two reviews, one on cohesion policy and the other on the post2027 MFF, both published this year, I should start by saying a review is different to a formal audit. It is a descriptive analysis that draws together our previous audit work. It consolidates what we have done in these particular areas before and tries to bring them together in one place to give clear messages or directions we think could be followed. They are forward-looking and their timing is deliberate. We are now in the early stages of the new MFF. We hope the concerns or ideas we have might feed into the system and be taken on board by the decision-makers. We have been asked to produce opinions on the new MFF package which will take a couple of months. We will give it to the Council and European Parliament and it is up to them which elements they take on. It is not mandatory; it is advisory input.

Cohesion is a hot topic and very important in certain member states; perhaps not so much in Ireland any more. It needs to design cohesion objectives around the needs of each region to reduce fragmentation of priorities which is also a problem and to foster synergies with other directly managed programmes. Cohesion is a shared management programme where the Commission and member states share the responsibility and other programmes are directly managed by the Commission. Sometimes there is not synergy or there can be duplication between the two. The big words at the moment are flexibility and simplification. Everyone complains that EU funds are difficult from an administrative burden point of view. In terms of the budget, it needs to balance longterm priorities with adaptability to crises, simplify reprogramming if and when necessary, and rationalise reimbursement rules. It also needs to preserve accountability and use simplified cost options. It would ideally make it easier for beneficiaries to not have as much red tape and documentation to provide. On absorption and performance, it needs to adopt the legal framework early because it tends to take a few years for an MFF to go live.

On the 2021-27 MFF, hardly any funds have been drawn down across the whole EU which leads to problems at the end when there is big pressure to spend money, which is not the most ideal scenario.

It needs to speed up the programming and ensure it has adequate prefinancing which will allow member states to start. It also needs to align reforms with investments because that has been a new element of the recovery and resilience fund where we now have reforms linked to the funding for the first time, I would say.

On the next MFF, again it is about simplification. We think they need to streamline the financial landscape, which is very complicated. There is a vast number of programmes. In the initial proposal it is proposing to reduce the number of programmes from 52 to 16, which is progress. It needs to simplify public procurement, which is extremely complicated. It is always a difficult area to audit and is where we find a lot of errors. Second, we think they need to have a budget that delivers on the policy priorities. It needs to ensure reforms, consider the specificities at national and regional level while guaranteeing equal treatment because that is one thing we saw with the RRF, where it may have been more difficult to have an equal playing field and treat member states on the same level.

Those are very important but particularly in our remit is the financing of the budget. There needs to be clear borrowing needs, how they are going to repay these borrowings, and they need to come up with a known resources proposal which is acceptable. The last one did not fly and I do not think the one in the new MFF will fly either. It needs to improve the comparability of data. On accountability arrangements, which is our key area, they need to make sure that there is accountability and transparency in respect of all EU finances. We are fully behind full democratic oversight because what we see in the EU is a lot of programmes being set up outside of the traditional EU budget which means we do not have an audit mandate so there is less democratic scrutiny involved. That is another area to note.

The idea of these reviews is to try to inform the next MFF process which is just under way and will still be a huge issue for Ireland during its EU Presidency in the second half of next year. As I mentioned previously we are preparing opinions at the moment. We have been requested by both the Parliament and the Council. They have asked for them by the end of the first quarter of 2026 but we will try to issue them as soon as we can when they are ready.

Finally the last two reports, which are a bit older, have a rural and community focus. They are both from 2022. I will give a very brief overview. LEADER is basically the EU’s participatory bottom-up approach involving local communities and project development and decision-making. It entails additional costs and risks compared with mainstream top-down programmes. We assessed whether LEADER delivers benefits that justify those extra costs. It was follow up to an earlier report we did in 2010, as it were. While we found LEADER had improved in some areas and clearly facilitates local engagement, evidence remains limited that its benefits outweigh the costs and risks. We therefore recommend the Commission carry out a comprehensive evaluation of LEADER’s costs and benefits and reassess the community-led development approach.

In the special report on durability in rural development we found that while most projects met contractual durability requirements, longterm sustainability varied by member state. In many member states, as soon as the contractual period was over the project ceased so there was not that durability for the legal requirement to have the funds. We also found weak economic performance and that illegitimate private use has undermined some results. This is particularly in the construction of tourist accommodation which was then used privately, for example. In that context we recommend better targeting of funds to viable projects, stronger selection criteria and business models which justify these projects. They have to make sure there is proper followup of projects to ensure they survive and are not just a short-term set up for funding which then just stop. One of the biggest problems we have is getting the right data. We need access to data in the member states so we can do a proper overview and compare across member states.

This was just an overview. It is our first time here. We wanted to give an idea of the different types of reports we produce across different policy areas. It is becoming more and more important because, as members will know, Ireland is now a net contributor to the EU budget and will become an even bigger contributor going forward. In the past there has been a lack of concentration on the use of EU funds because it is just EU funds and we benefited more than we paid but the figures involved now are quite substantial and it is proper that we examine it. Part of this money is Irish taxpayers’ money. The contribution that goes to the EU budget is Irish taxpayers’ money. Ireland has an obligation to repay some of the borrowing which has been engaged in by the Commission in relation to the next generation too. It is not all just free money. This has to be paid back at some time. This is where the EU is at the moment. It is really at a crossroads because it has many priorities with which it wants to engage but it does not have the money. The EU budget is 1.26% of GNI* - that is the proposal in the new MFF. It is €2 trillion. That is a lot of money. Some member states are against any increase and want that to be decreased. On the 1.26%, 0.11% of that is just to repay the borrowings for the NGU. It is around €30 billion a year. We kept saying that it was not really good budgetary management. It was borrowing this money and okay, it is guaranteed by the member states, but it had no dedicated income stream to repay these borrowings. The own resources proposal fell. That was its idea at the time. The issue on the table is does it try to get member states to pay in more. I think that will be difficult as under the current circumstances many member states are already in dire straits themselves so there will not be a big appetite there. Do they increase borrowing, which just kicks the can down the road, in a way, or does it cut back if it wants to branch out into enlargement, Ukraine, defence or whatever? In that case the traditional policy areas will, by default, suffer, whether it is cohesion, agriculture or whatever. It is only one cake and you can only cut it into so many slices. That is an overview of where we are at the moment.

John Paul O'Shea (Cork North-West, Fine Gael)
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I thank Mr. Murphy for that insightful presentation on the work of the ECA. A number of members have indicated. First is Deputy O’Reilly.

Louise O'Reilly (Dublin Fingal West, Sinn Fein)
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I thank our witnesses for being with us this morning. I apologise in advance that I cannot stay for the entire duration of the meeting. I have to speak in the Dáil Chamber so I will have to go.

Mr. Murphy referred to the powers the ECA has. It reviews and makes recommendations but ultimately the European Parliament or the Commission decides. It is good to review. Reviews are important and we should be constantly in a state of review. In terms of the recommendations the ECA would make as part of the review process, what is the onus on the Commission, the Parliament or any individual entity to accept those recommendations? In the event they are not accepted, what power if any does the ECA have? What mechanism does it have to ensure that the recommendations it makes are followed? I have not read them all but I have gone through the reviews. They are definitely comprehensive. The ECA has looked under the bonnet and its recommendations are made on the basis of very good information collected and analysed. What happens then to that and what powers does it have around, I will not use the word “enforcement”, maybe persuasion is a better word? How does it go from recommendation to action? What happens if no action follows?

Mr. Tony Murphy:

There is a process where we issue a report. I would distinguish between our audit reports and these opinions. They are different. With the audit reports there is a sort of clearing process with the Commission which is our main auditee. We generally do not issue recommendations directly to member states but to the Commission, which may then have to try to cajole member states to go down a certain road. There is a clearing process with the Commission.

If you look at any of our reports a reply from the Commission is included. This is part of the process. It accepts or rejects recommendations and explains why. We then go to the budgetary control committee in the Parliament, which looks at the report. I have to say that 90% of our recommendations are accepted. That is already a good start. When we go back two or three years later, we see that 80% of those are generally implemented. It works quite well. Some people do not like having a recommendation in a report that is not accepted, but I say that there should be some. We do not have to agree on everything.

Louise O'Reilly (Dublin Fingal West, Sinn Fein)
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There should certainly be evidence that they existed.

Mr. Tony Murphy:

Sometimes the European Parliament can disagree with the Commission and say it also has a discharge resolution when considering the reports. It can say it recommends this recommendation is implemented. There is another step. Sometimes that can even happen at the Council level. We go to working groups of the Council and it can also discuss reports. They will sometimes say something about a particular recommendation. Certain member states might be stronger on certain things than others. They might be vociferous at a working group and say they think this recommendation makes sense. To be fair, auditors are sometimes looking for nirvana. Sometimes the recommendations could be good in principle, but in the end when they do an analysis, they might say this costs too much to implement. The cost-benefit analysis is not worth it. We have to be realistic and reasonable. That is a structured and set procedure for audit recommendations. What is probably more interesting is the opinions, which the Deputy said is like bringing them together. We did one on the RRF. We have done an awful lot on recovering. We did approximately 12 reports and brought them all together in a review and we have one page where we say what we think are the risks and challenges. That will also feed into the opinions we do. The opinions go into the system and are then part of the negotiating process, which are the tripartite meetings between the Parliament, the Commission and the Council. We are not involved there. It is a contribution. We hope some of the issues we raise will be there. Probably our most effective way to be honest is via the European Parliament. We go to the rapporteurs who are responsible for the dossiers. We will tell them these are the specific issues we think are more important. We know they will not take on board everything. For instance, for us, on the new MFF what we see is that it is almost going down the road of budget support. It is giving the money centrally. There is less regional involvement. It is becoming like a transfer to the member state, and it goes into the national funds. We say there has to be proper traceability. That was one of the issues we had with the recovery and resilience fund. It is impossible to trace the money.

Louise O'Reilly (Dublin Fingal West, Sinn Fein)
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That is very worrying.

Mr. Tony Murphy:

Absolutely.

Louise O'Reilly (Dublin Fingal West, Sinn Fein)
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Mr. Murphy is saying it is impossible to trace the money and it appears there are far too many people in the European Union, of which we are part, accepting that it is impossible to chase the money. It strikes me that there is sometimes a lack of oversight and accountability, and you will hear that. If that oversight and accountability is happening it is not being conveyed. There is the idea that what happens in Europe is very distant. We then feel the impact of it several years later. There has been an extensive process, but it can sometimes be a little distant. I thank Mr. Murphy for his answer.

Mr. Tony Murphy:

It is important to say that we are auditors. We are not politicians.

Louise O'Reilly (Dublin Fingal West, Sinn Fein)
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I understand that.

Mr. Tony Murphy:

That is the problem we have. We cannot question the political decisions. We have serious issues with the RRF. We recognise it was done in a crisis time with the pandemic, etc. However, we are saying that when you look at the new MFF we are not in a crisis time as such. Okay, there are different crises going on, but there is space to think about this and try to improve.

Anne Rabbitte (Fianna Fail)
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I thank the witnesses for the presentation and their time this morning. Mr. Murphy is not a politician, but when we politicians hear that money is unspent our ears perk up. We wonder what is happening to the money that is unspent and might be sitting there. Could it be repurposed? Is it ringfenced to ensure that it can be spent on what it was designated for? Will it eventually get drawn down? How much of that unspent money is Irish, is designated for Ireland, and which has not been drawn down and is unspent? Is that a fair question?

Mr. Tony Murphy:

It is a fair question. As I said at the start, we find pressure on some member states to spend money at the end. Generally, they get there. Whether it is the most effective use of the money is another issue. Generally speaking, if you look at the absorption rates, they are very high. Ireland is generally very good at getting EU funds. It is at 99% with the ESF funds and does not have an issue there. The RRF was very slow and still is a bit slow. The BAR was another fund where some of the money was transferred. They have not lost anything. I think they transferred €150 million from the RRF to REPowerEU. The RRF is quite slow, but it is slow across the whole of the EU. This was based on plans designed in 2021 or 2022. Things have changed. There were also issues with being able to deliver on the milestones and targets they set within the plans. I do not know what is going to happen. As I mentioned, with the new MFF the absorption is something like 10%. We are already almost at the end of 2025. You see in the latest MFF review that the Commission is in a way proposing to move that money towards defence-related expenditure. If you look at our cohesion review you find that cohesion is always used for emergencies. If something happens that is the pot they tend to go to, to take the money. We are saying that there is a risk they do this so often that the actual objective of cohesion is being diluted.

Anne Rabbitte (Fianna Fail)
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That is what I was going to say.

Mr. Tony Murphy:

If you want to call it defence, it should be called defence. Do not change the wording within the cohesion framework to say it is cohesion. They will argue that a lot of this will be used for dual-purpose, whether bridges or transport that will help with military mobility. You could argue there is also an element of infrastructure for the normal citizen.

Anne Rabbitte (Fianna Fail)
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My line of questioning relates to funding that would have been promised but could not be accessed because of the time of Covid and everything like that. The cost of delivery has gone up because of the cost of building. I assume the states have to go back in to reapply or redesign the application sent in. It just keeps going and going, and we never get to the end piece. One of our greatest criticisms of the Taoiseach at the moment relates to our local authorities. Maybe some, not all, are not great at delivering housing. We still have to ask the same question with regard to accessing the funds that were in the original pot for delivery. I come from the Border-midlands region, which is an area that is not where it needs to be at. Funding means a lot to us, be it our airports, road or any infrastructure. Funding means an awful lot. Funding there might not be drawn down but could be repurposed into cohesion, when we need to get the cohesion right at home as well.

Mr. Tony Murphy:

On a personal level, we have seen the impact of cohesion in many member states. It is also a way to legitimise the EU at local level because people see the benefits. It is a really important policy area. On the money, from Ireland's perspective, the absorption rate is that it tends to absorb all of its budget – that is the normal budget. The question of the RRF is interesting because we will see what will happen. The drawdown generally, not just for Ireland, is that around 60% of the grants have been drawn down. They are all supposed to be drawn down by the middle of 2026, so there is less than a year left. Let us see what happens. I am sure the Commission will come up with some creative way of extending the money.

Some member states would say "so be it". Some of the big payers would say that if money is not used it should be taken back. These plans took a lot of time. As Senator Rabbitte said, some of them have been renegotiated. It is a huge process to renegotiate them. One of our issues with the RRF is that it was supposed to be less bureaucratic but if we go around the member states they say it is worse and there is more bureaucracy involved for them.

Anne Rabbitte (Fianna Fail)
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You would need a degree to fill out some of the European grant application forms. To be honest, it is not comparing apples with apples when we look at the various organisations. It is okay for organisations that have a paid board, and a designated project manager who can spend their time chasing the grants and filling out the forms, and is educated on the point of compliance required. This is as opposed to community groups that need to make applications to LEADER, which comes under European funding. We can see how they lose out all of the time while others get through all the time. It comes back to having a paid position because some of these applications are a full-time job.

Mr. Tony Murphy:

We are auditors. We are always advocating for simplification but the rules are set by the Commission. They are set in the common provisions regulation or whatever it might be. It sets the rules. We have criticised various member states as sometimes member states go beyond this and impose additional rules themselves over and beyond the EU requirements. They have gold-plating, if we want to call it this.

Anne Rabbitte (Fianna Fail)
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This is an interesting point. I apologise for interrupting Mr. Murphy. When the European Court of Auditors does an audit summary I have no doubt it sees some states that go the extra mile. Are we in this bracket?

Mr. Tony Murphy:

To be perfectly honest, I have to say that Ireland is a very small recipient of the Cohesion Fund. We only sample as we cannot go to every member state and audit it in detail. The European Parliament would love us to audit every member state and have a league table, if we want to call it this, with the gold star pupil and relegation material. We cannot do this. We just do a sample of member states. We have a broader view than an auditor general in a member state because they only focus on one state. In a special report we might look at five or six member states. If Senator Rabbitte looks at our sampling she will see that Ireland does not feature that often in our financial audits because the money involved is small. The transactions we pick are based on materiality. We do some special reports, mainly in the agricultural sector. I would not say we have seen it very much in Ireland because we do not audit that much in Ireland because of the relative materiality.

Anne Rabbitte (Fianna Fail)
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I totally understand. Do we have figures on what is unspent or not claimed?

John Paul O'Shea (Cork North-West, Fine Gael)
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We can come back to that in our second round of questions.

Mr. Tony Murphy:

We can provide this for Senator Rabbitte.

Anne Rabbitte (Fianna Fail)
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I thank Mr. Murphy.

Johnny Guirke (Meath West, Sinn Fein)
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I thank the witnesses for coming before the committee and giving us a report. I have a lot to learn and if I go off track I ask the witnesses to bring me back. All European countries are speaking about military spending at present. Mr. Murphy said we have to contribute to the European Union. Do we have any idea what we are contributing at present or what we will have to contribute in monetary terms in future? If an amount is going to be invested in military spending, we can see it will have some effect on the money we will get from Europe in future. This is how we would be thinking anyway. With regard to investing in paying off the debt, I often think that a few years after the dollar goes weak it normally comes back. I have some questions on LEADER but I ask Mr. Murphy to answer these first.

Mr. Tony Murphy:

On the pure cash flow, if we want to call it this, in 2023 we paid €3.2 billion into the EU budget and we received back roughly €2.2 billion. We are looking at approximately €1 billion in the difference. If we break this down, most of what we paid in, at approximately €1.5 billion, went to natural resources and environment. This is basically agriculture. We will publish for 2024 next week.

Johnny Guirke (Meath West, Sinn Fein)
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If countries invest in military spending would the agricultural sector be the first to be hit with regard to funding coming from Europe? Farmers tell us they depend on it. Somebody will pay for it.

Mr. Tony Murphy:

There is no such thing as a free lunch nowadays.

Johnny Guirke (Meath West, Sinn Fein)
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No.

Mr. Tony Murphy:

As I said earlier, there is potential to move some of the money in the Cohesion Fund towards dual-use projects which can then be considered part of defence expenditure. The other big figure mentioned is the €800 billion for defence but this is purely member states' own money and it is voluntary. There is €150 billion for loans and this instrument is called SAFE. If member states provide an action plan on what they will do with it, they can borrow this money. Again, this is different to the other borrowing I mentioned. Basically it is borrowing by a member state which has to be repaid by that member state. The NGEU was for grants so that money is gone.

The other big figure for defence is the €650 billion. It sounds like this money is all there but, in fact, it is not. This is €650 billion that member states can voluntarily spend on defence without having problems with their deficits. They would be allowed to have an additional increase in their deficit of 1.5% if they spend their own money. The €800 billion is not EU money at all. There is €150 billion that is borrowed by the EU but on behalf of member states.

There are several issues. The current MFF talks about redirecting money to dual use projects. In the new MFF there is a figure for defence expenditure. As I said earlier, we have one cake if we have €2 trillion and we want to divide it across various policy areas. So far the two areas complaining the most about the new proposed budget are the agricultural sector because it sees it as a potential reduction in its funding, and the regions because of cohesion. Effectively, as I explained earlier, this is a fixed budget. It looks a bit bigger but if we take out the borrowings and repayments it is almost back to what it is now. If we have new priorities such as defence, Ukraine will probably come on the scene, and enlargement is very topical again, then obviously something has to give.

Johnny Guirke (Meath West, Sinn Fein)
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It would not necessarily hurt services in a particular country if this money can be borrowed. Countries are using their own money to build up these defences. Is this what Mr. Murphy is saying?

Mr. Tony Murphy:

There are two aspects. Up to €150 billion can be borrowed from the EU. The other aspect is countries spending themselves and increasing their own deficit.

Johnny Guirke (Meath West, Sinn Fein)
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Which would hurt services in that country.

Mr. Tony Murphy:

It depends. The argument is that countries would not be sanctioned for having this additional expenditure. In terms of fiscal discipline there was a limit on the deficit a country could have. A buffer above this is being allowed to spend on defence.

Johnny Guirke (Meath West, Sinn Fein)
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What evidence does the report present on the real impact on older people and people in poverty? Mr. Murphy touched on it earlier with regard to the population getting older. Would he recommend that budgets should spend more on taking people out of poverty then on super junior Ministers?

Mr. Tony Murphy:

Again, these are political decisions. This question is not even at EU level but at national level where we have absolutely no mandate. We look at particular areas. As I have said, we are going to look at upskilling workers in the context of the competitiveness of the EU because the changing environment, including the impact of technology or AI, will mean that some people will have to be reskilled. Sometimes we look at various cohorts. It is difficult because it is very hard to see the impact of EU funds on separate cohorts. They tend to be recorded as vulnerable people, say, rather than people with a disability or aged people.

It is hard to separate out.

Johnny Guirke (Meath West, Sinn Fein)
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I agree with Senator Rabbitte that the paperwork turns a lot of people off applying for schemes, especially LEADER and stuff like that. When they do get the funding, for example, someone building a community centre, it falls way short. An awful lot of this money is not even used. If there were more money for a particular project, we would see an awful lot more of it being drawn down. I see that a good bit across different community groups.

Mr. Tony Murphy:

For us, the worst thing we hear is that people are either put off applying for EU funds or they just do not bother because it is so complicated. We do not set the rules. We try to encourage simplification of the rules. We do not set the budgets either in terms of projects for whatever the amounts available are. These are envelopes that are given to member states. Generally, then the member states decide on what they want to do with their envelope and how much will go to this programme and how much will go to that. They agree that with the Commission based on operational programmes or whatever. The member states still have quite a big role in determining the split of where its funding will go when it is negotiating with the Commission.

John Paul O'Shea (Cork North-West, Fine Gael)
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I wish to continue on the issue that Deputy Guirke and Senator Rabbitte mentioned on LEADER funding and the challenges posed there for local development, local authorities and local community development committees, LCDCs. It is stark to see that while there are two reports - one from 2022 and a previous report - it is still saying that in some areas the evidence remains limited to its benefits outweighing the costs of the works. That is a real challenge for communities in particular. We have a lot of people, such as Government Departments, applying for the RRF programme. We have local authorities with fully qualified staff applying for EU transitional programmes or transnational programmes. However, we then have a community group that has limited expertise in European funding trying to navigate an application process.

I am 15 years in public life, including local level and now one year in the Oireachtas. It seems to be getting more and more challenging. There is a turn-off. People are saying that they rather apply for the national funds that are available here through the community centre investment fund than apply to the local LEADER company for that. Despite having two reports, is there any light at the end of tunnel that the community-led approach is being listened to in Europe and there is going to be a simplification of that?

Mr. Tony Murphy:

At the moment, there is a risk it might get worse. This is the whole cohesion thing. That is a place-based policy area. Brussels and the Committee of Regions are extremely worried that this centralisation of all the funding will have an even bigger impact on the regional input because the idea is that the region knows best and what its needs are. The risk is that if it goes centrally, it is somebody else making the decisions. There is a bit of a kick-back. I see strong kick-back from some member states that want to maintain this regional involvement. That will have a knock-on effect for things like LEADER. If Cohesion Funds are going central, that will have an adverse impact on the LEADER ones as well.

John Paul O'Shea (Cork North-West, Fine Gael)
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Mr. Murphy mentioned in his presentation programmes such as the RRF, which was established after Covid for recovery and resilience. We have huge projects, but they are not being drawn down in time. It is the same with every European scheme that comes out. For example, there are schemes from 2021 to 2027. As Mr. Murphy mentioned, it is 2025 now and a lot of our funds have to be committed by the end of next year and drawn down. Is there something from his perspective we can try? All European programmes I recall that are established and have a five- or seven-year term, but it is year four before they start any traction. Is there any light at the end of that tunnel in terms of trying to make those more open and accessible? For example, in my county of Cork, the Irish Rail investments are being funded through the recovery and resilience fund, but that obviously takes time. It is now progressing but it obviously took time for the project to get up and going and to achieve planning permission and consent. These projects are pretty significant in the main and they will take time. Is it a lack of Government will in terms of being prepared for these funds? It probably knows they are coming. Is it a case in point that we are not prepared enough?

Mr. Tony Murphy:

There are a few elements. Part of the problem with the low absorption for 2021 to 2027 is the fact that this RRF was available at the same time. There is almost competing funds. RRF is 100% financing; the others are not. Member states will prioritise using the RRF funding in the first instance if they can. This is one of the things. Ireland has drawn down the money. For instance, in the case of RRF funding, once a plan is signed and approved, you are entitled to draw down 13% of the total. Ireland did not do that. There is also an element that there is so much going on at the same time. We also have capacity issues in certain member states to be able to handle all this money. We had the Brexit adjustment reserve fund, BAR, RRF, MFF for 2014 to 2020 and 2021-2027. The 2014-2020 scheme has just ended. To encourage member states to spend money, apart from the RRF, within the normal budget there was a coronavirus response investment initiative. This is again where member states were encouraged to submit projects because, exceptionally, there was 100% financing available for a one-year period. We do not like these really tight deadlines because it encourages spending for the sake of spending. In the overall scheme of things, we absorb the money but whether we achieve what we should achieve is another thing.

John Paul O'Shea (Cork North-West, Fine Gael)
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On the pension reports that Mr. Murphy mentioned, we are going into auto-enrolment here from 1 January next year. Is the auto-enrolment scheme in Europe a positive or negative? What is Mr. Murphy's view on that?

Mr. Tony Murphy:

Anything that helps bridge this gap that we are talking about is a positive. We have to see how it works in practice. It starts in January. It is for a particular cohort of people within the age and salary range. It will be interesting to see. Anything that attempts to address this potential income gap that we are talking about when people retire, that people do not fall off a cliff edge, is welcome.

John Paul O'Shea (Cork North-West, Fine Gael)
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Obviously, there are a few of them already in place in other parts of Europe. Does Mr. Murphy have a view on those?

Mr. Tony Murphy:

This is the first one we did on pensions as such. What we can see in the charts is how advanced some member states are compared with others, such as the Netherlands and Denmark. They are heavily involved in all of this and the money that has been invested for different pensions funds. It is a start. It is not going to solve everything overnight. It is at least a positive step. As we talked about the demographics and people living longer, now the ratio of people is going to be going down from five working people to almost going to be two to one, there is the financing of that. The national pensions committee figures for the accrued liability for the public service pension scheme are astronomical. If we look at the EU, the figure is almost €100 billion for liability for pensions of officials. We saw a stark thing when the UK left the EU, they had to pay their portion of that. At the time, it was approximately €14 billion or something like that. They are huge figures. It is an issue that is a concern for all of us, it is to be hoped, at some point in time.

John Paul O'Shea (Cork North-West, Fine Gael)
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Senator Rabbitte has a number of supplementary questions.

Anne Rabbitte (Fianna Fail)
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My colleague Deputy Guirke and the Cathaoirleach asked about a particular matter. People are anxious about whether LEADER funding will be cut further. It has been cut not in successive CAPs at this stage. We talk about cohesion, integration and different regions. LEADER plays a very valuable role in that regard. I am not stating that the CAP should be maintained in its entirety. From an agricultural perspective, I would argue in favour of keeping it as is rather than doing anything else. LEADER funding is the biggest concern because it works in cycles and starts programmes. It is no different from the Dormant Accounts Fund, which also comes under that part of the CAP from which the Department of Social Protection takes funding. It was only the previous week that we had traveller community in here and its programme is coming to an end at the end of next year. That is all based on how much it will be possible to have reinstated and what percentage can be delivered.

I could understand the movement of the money if we could protect certain elements of it. That is the most important part. Defence speaks to many topics, including cybersecurity and everything else. Defence is very broad. I do not mean to make statements, but when I look at what happened during Covid in the context of cybersecurity and the HSE, it probably cost us more to get that sorted than the whole of the pandemic did because nobody really knows what it cost. However, nobody is denying that on-the-fly statement is incorrect and neither are they saying I am wrong to make it.

I can understand the movement of money, but I have a worry about anything that has already been guaranteed in the context of the delivery of projects. I think of the Galway ring road and money that might or could have been allocated to manage that. The ring road is a key piece of infrastructure. If that funding was not there when we want to start it 20 years later - that will hopefully be in the next year so - what would have happened? The Cork lads are happy because they have the Dunkettle interchange and are okay, but Galway people need the ring road. It is about minding the money. The ring road is a key piece of infrastructure to allow the region to continue to grow. We cannot build on the sea; we need to get people moving.

The regions are a big aspect. To be fair to it, the Northern and Western Regional Assembly is continuously compiling fantastic reports. However, it is probably dependent on funding that has not been drawn down but that could be in the mix to be redistributed. That is a concern.

Mr. Tony Murphy:

These are all very political decisions that have to be made. We cannot question those. If we are talking about the CAP as it is or as it should be, we will audit the CAP and whatever is approved by the policymakers at the end. We could come along afterwards and point out that it was stated that so much of the CAP would be spent on greening measures or whatever and that, on the basis of our audit work, we know it had not happened. I am not saying that is the case, but that is the kind of thing we have seen. For instance, a few years ago, the Commission said we would spend one euro in five on climate action.

Anne Rabbitte (Fianna Fail)
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That is right.

Mr. Tony Murphy:

The figure was something like €206 billion; it was certainly just over €200 billion. We looked at it and stated that we thought €70 billion of it did not relate to greening measures. It is about how people classify expenditure and about the controls to make sure measures really are green. LEADER funding and the CAP will form a major part of the negotiations relating to the next MFF. Whatever they think is most appropriate for those they represent is obviously what the agricultural lobbyists will be fighting to defend.

I fully agree with the Senator on defence. It is not just defence, and sometimes people have that image. It is about cybersecurity, space and all sorts of different areas. We have a report coming up on cybersecurity and significant and large scale cybersecurity incidents. We have an audit team here looking at the National Cyber Security Centre. Ireland is in the sample this time, probably because of the HSE incident because it was a real case that has happened. It made sense to look at what happened and at what has been done to mitigate the chances of it happening again.

The negotiations for this MFF will be really difficult. That is just my personal perspective. From what we hear, the Danes are trying to finalise the structure of the budget by the end of the year. I would say that is very optimistic. Ireland will be in the midst of it all during our Presidency next year.

John Paul O'Shea (Cork North-West, Fine Gael)
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It is important to note that Mr. Murphy is not the Commission; he is the auditor, and we cannot blame him for anything.

Mr. Tony Murphy:

Absolutely. We can be blamed for certain things, but there are other things for which we cannot be blamed.

Anne Rabbitte (Fianna Fail)
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Some of our colleagues have left because the transport committee is meeting next door. Roads are a big issue in this country, as, no doubt, Mr. Murphy knows. As an auditor, Mr. Murphy observes. He sees trends and he sees what is spent and what is not spent. I have no doubt he looks at value for money as well. If we go back to the previous CAP, the focus was climate. We were meant to move a certain amount into the organic space. How much of it did we actually move? Tied in with that, of the targeted agricultural modernisation schemes, TAMS, which are available here in Ireland, how many extra lines did we put in that were tangible greening measures which could support farmers to get to the place they need to be?

John Paul O'Shea (Cork North-West, Fine Gael)
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Climate is a very broad description as well.

Anne Rabbitte (Fianna Fail)
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Exactly. I have a group coming in later today to discuss TAMS. We cannot get one line into our local TAMS piece. That is us spending our own money. There is a lot of money for climate in the agriculture pot which, I reckon, will not be spent because our messaging might not have been great.

Mr. Tony Murphy:

If we look at the EU funds for agriculture, they are drawn down. We do not know what happens after that.

Anne Rabbitte (Fianna Fail)
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All right.

Mr. Tony Murphy:

It is drawn down at least, and is available for disbursement. We have done a lot of audits in the area just mentioned. We did a specific audit on organic farming. We did another on the CAP plans and we reviewed those plans. We do many audits in these areas. Some of them have come up, but, generally speaking, we find the same things. If you look at our reports, many of our recommendations and comments stated that the targets or goals may have been too optimistic. Monitoring it and proving value for money can be very difficult. The Senator is talking about small community programmes not being able to demonstrate it. Member states cannot even demonstrate it. They do not have proper performance monitoring systems in place to show what the impact of a particular policy is and what it is not.

We have done quite a few audits because there is a lot of money involved. Since 2014, there has been funding of about €12 billion for organic farming. That is across the EU, but it is still a lot. The value of our report is that we can point to some member states where it was actually quite successful and others where it was not.

Johnny Guirke (Meath West, Sinn Fein)
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Of the €2.2 billion Ireland drew down, Mr. Murphy said €1 billion was for farming. Is that right?

Mr. Tony Murphy:

There was €1.5 billion for farming.

Johnny Guirke (Meath West, Sinn Fein)
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It was €1.5 billion for farming, so only €700 million was left. Where did that go?

Mr. Tony Murphy:

The cohesion policy got €180 million. The Single Market innovation and digital policy got €285 million. The rest was made of up small figures. The bulk of it went to natural resources, environment, cohesion and the Single Market.

Johnny Guirke (Meath West, Sinn Fein)
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Does Mr. Murphy's reports identify any weaknesses in the management of European Union funds for social protection and rural development programmes? In what areas would such weakness have been identified?

Mr. Tony Murphy:

We do two aspects. We do the financial audit, which is our annual report, where we look at the moneys spent under specific programmes to see if they were spent in line with the rules. We have a chapter on agriculture in our annual report, so that is where it would be. It is chapter 7. It provides an overview of what we have looked at in agriculture. It would show the different issues we have found. Then we will look at particular aspects in the special reports. It could be organic farming or whatever. We would see, first, whether the money has been spent, whether it was spent on what it was supposed to be spent on in line with the rules, etc. Second, we look at the policy aspects of the policy.

Johnny Guirke (Meath West, Sinn Fein)
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Mr. Murphy talked about climate. If we do not invest in poorer countries, we are going to have a lot more inward migration. What would Mr. Murphy's thoughts be on that. If the European Union does not invest more in climate action, we will have an awful lot more people moving in this direction. Would it be right to say that?

Mr. Tony Murphy:

That is an assumption. There will be people moving for economic reasons as well. It is not just climate. We have done a lot of work on migration as well. We have looked at things like the Türkiye fund or the repatriation of refugees and the systems of holding centres when it was really at its peak in the Mediterranean. Again, we are going back to the point that these are political choices and systems that have to be put in place.

John Paul O'Shea (Cork North-West, Fine Gael)
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To round up, the European Court of Auditors is celebrating a milestone of 50 years.

Mr. Tony Murphy:

Fifty, yes.

John Paul O'Shea (Cork North-West, Fine Gael)
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A 50th anniversary. Could Mr. Murphy comment on the-----

Mr. Tony Murphy:

I have not been there for 50 years.

John Paul O'Shea (Cork North-West, Fine Gael)
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Mr. Murphy must have started very young if that is the case. Could he comment on the trends he has seen during his time there and the lessons learned? How does he see the direction of travel for the auditors for the next seven to ten years?

Mr. Tony Murphy:

I think I have a good overview, because I started in the Comptroller and Auditor General's office. I was there for quite some time.

John Paul O'Shea (Cork North-West, Fine Gael)
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Good training.

Mr. Tony Murphy:

Good training, yes. I then spent some time in the European Commission, which is our main auditee. I have been in the European Court of Auditors for about 12 years so.

The audit profession is changing due to technology, AI, etc. It is going to have a huge impact on the way we work. For instance, we have to publish everything in all the official languages, which is a huge overhead. AI will eventually have a major role there in terms of reducing translation. It is not reliable enough the moment, apparently, so we still have some work to do in that regard.

The big changes I have seen are in technology. When I started in the C and AG's office, our big technology was a green pen that no one else could use. We were the only ones allowed to use a green pen. Things have changed from those days. Computers were really only for data mining and stuff like that. It was in its very early stages. Technology will change.

We will also have to deliver more for less. It is a general trend in administrations. The big area that is under pressure in the EU budget is administration. There is very little room for manoeuvre there no matter what. It is capped and if anything, they want to reduce it. That will also have an impact.

Ireland has become a net contributor, which will create a bigger awareness of the EU and its impact. We have been banging on about this for a while. We had a very good Irish presence in the EU institutions because a lot of people joined when Ireland join the EU. Many of them are now coming to retirement age. We have not had a replenishment, let us say. It is really important to have an input in the different directorates general in the Commission. You are not there to represent Ireland per se, but you are bringing the Irish aspect to the table. These are trends we have to be careful of. We need to have a good representation there.

The EU also has to be careful. Covid was an opportunity. The EU stepped into the breach. That had to be done, but there are also areas where we have to respect national sovereignty. We joke with the Commission by saying that NextGenerationEU is very well named because the next generation is going to have to pay it all back. As stated earlier, we are at a crossroads with the EU. It has to decide what it wants to do with the money it has available. I would tell it that getting the structures organised this year would seem to be putting the cart before the horse. Surely it would be better to know how much money it has available and then the structure should fit to the money. I would have thought so.

The next MFF is going to be very difficult. We also see fragmentation in Europe in terms of some of the member states not being the most co-operative. There are many challenges ahead. Enlargement is really going to be an issue in the short term. Moldova had its elections; it wants to join as soon as possible. Montenegro has been waiting for a long time. The big one on the block is Ukraine. The money that would be involved there is phenomenal.

Member states and people have to realise that, sometimes, the expectations of the EU, with the budget it has, are a bit out of sync. You have a budget of a couple of hundred billion euro that you are trying to spread that across 27 member states and then across regions in those member states. We have our different boards here. There are three or four here now but if you go to Spain, it is really decentralised. There are huge regions there, which are all very different. You are trying to have an influence across all of this. I am not saying it is not a lot of money but, relatively speaking, sometimes I think the expectations are maybe too high. Some of it is the EU's own fault because it maybe promises too much. Sometimes it should be a little bit more cautious in what it claims. On the other hand, you have to be a bit ambitious as well. We have the problem with the climate targets, for instance, because they are not going to be met. We are now into fines territory. There should be ambitious targets but they should not be unrealistic.

John Paul O'Shea (Cork North-West, Fine Gael)
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I thank Mr. Murphy for his time. I also thank Mr. Brian Murphy and Ms Emily Davis for coming in. We appreciate the witnesses providing the various materials in advance to assist the committee in its deliberations. We look forward to their continued engagement with this committee going forward. We very much appreciate it. We will suspend for five minutes to allow for the departure of witnesses and will resume in private session.