Ireland’s EU auditor warns of risk of wasting €750bn Covid-19 funds

A drive to spend the European Union’s massive €750 billion Covid-19 stimulus fund quickly carries risks of fraud and waste, Ireland’s member of the European Court of Auditors has said.

Backed by joint borrowing, the Next Generation EU funds are made up of €390 billion in grants and the remainder in cheap loans, doled out to member states to be spent on investments and reforms to reach climate and digitalisation targets.

Some countries are to receive large amounts under the scheme, which is apportioned according to underlying economic strength and the impact of the pandemic. Italy is set for some €191.5 billion in a mix of grants and loans, while Ireland is one of the smallest recipients, in line for almost €1 billion in grants.

“Obviously where money is being put out quicker, normally you would say the risk of fraud is inherently higher,” Ireland’s member of the body, Tony Murphy, said.

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“The emphasis is to get this money out quickly . . . which obviously can provide opportunities. But I think for us the other risk is that we would get projects which are not the best quality,” he added.

“That’s a risk I would definitely see, that there’s so much money to be absorbed in a very short period of time, that there could be pressure on just to spend it on anything, whether it’s really providing a lot of added value or not.”

Scrutiny of expenditure

While some details of how the spending will be scrutinised are still being worked out, payment of the funds will be linked to the achievement of targets rather than on a cost-reimbursement system. This means that auditors may have less oversight over the spending of the funds, Mr Murphy said.

“We’re not talking about cost reimbursements anymore, we’re talking about milestones being met for reforms or investment targets being met. It’s a completely different field,” he said.

For example, a project to buy 1,000 computers for a school would only need to demonstrate that this had been done, and not show the invoice for how much the computers cost and where they were bought, he said.

“At least as far as we understand today, costs are irrelevant for us, which would mean things like procurement, all of these issues, wouldn’t be part of our audit scope.”

In addition, if the money is paid into the general accounts of member states and becomes mixed with ordinary national funds, the EU could lose oversight of how they are spent.

“Because it’s a different funding mechanism, there are still open-ended questions about – is it member state money? And if it goes into the overall pool, it’s not easy to follow,” Mr Murphy said.

Net contribution

According to the Court of Auditors annual report, Ireland was a net contributor to the European Union’s budget in 2020, continuing a shift in recent years after decades of receiving more on balance from the union than it put in.

The net contribution in 2020 was €360 million, compared to €229 million in 2019 and €541 million in 2018, though this calculation does not include benefits such as the economic impact of single market membership.

Total EU expenditure in 2020 was €173.3 billion, according to new figures by the European Court of Auditors, which represents just over €385 for each EU citizen or 1.1 per cent of the EU’s overall gross national income.

For the second year running, the auditors produced an adverse opinion on legality and regularity of expenditure in the EU, due to an estimated rate of errors of 4 per cent in areas of high-risk expenditure.

An error means that money is paid out not in accordance with EU or national rules, but does not necessarily mean deliberate wrongdoing or fraud has taken place.