Euro-budget hit by losses through fraud

The European Community's pounds 47bn annual spending is becoming increasingly vulnerable to losses through fraud, an all-party group of MPs said yesterday.

In a report which will be welcomed by Eurosceptic MPs, the Public Accounts Committee argues that existing measures to combat fraud, particularly from funds paid to farmers through the Common Agriculture Policy, are inadequate because the procedures are too complex and unworkable.

The MPs found that CAP payments, which cost pounds 32.5bn during the current year, are governed by more than 3,000 regulations, and the Court of Auditors, which oversees European Union expenditure, "had major difficulties in ensuring eligibility through inspections of final recipients. Not only [were the payments] difficult to audit effectively, but the scale of operations across the Community and the complexity of the regulations made it particularly vulnerable to fraud and abuse."

Indeed, estimated losses as a result of irregularities from CAP payments increased from pounds 77m in 1992 to pounds 320m in 1994. The MPs call for "simplification and structural reform" of the CAP.

Payments under structural funds - such as the social fund and the regional development fund - amount to pounds 20bn per year and the Court of Auditors told MPs that around 5 per cent of the grant payments made to 31,000 separate projects contained "technical faults", averaging about 30 per cent of the value of the grant.

Another major source of fraud is the loss of VAT payable to the European Community, one of its major sources of income. The MPs say that VAT and customs duty on imports are payable only in the country of final destination but because of inadequate information systems and the general complexities of goods in transit crossing several national borders, an estimated pounds 542m is lost annually.

The MPs are also bemused by the fact that the precise amount of the UK's net contribution to EU funds of around pounds 1bn is not known because different figures are given by the Treasury and the Court of Auditors. The court thinks that this is because of the use of different financial years and the non-inclusion in the Treasury figures of amounts paid by the private sector. The MPs say that it should be possible to reconcile these differences and welcomes moves by the Treasury and the court to do so.

t Committee of Public Accounts, The Audit of European Community Transactions, The Stationery Office, pounds 5.10.