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Joint Committee on European Union Affairs debate -
Wednesday, 16 Dec 2015

European Court of Auditors Annual Report 2014: Mr. Kevin Cardiff

On behalf of the committee, I welcome Mr. Kevin Cardiff who is the Irish member of the European Court of Auditors. It is the independent external audit institution of the EU. In its annual report on the EU budget, the court gives its opinion on the reliability of the accounts and the legality and regularity of the transactions that underline them. This year, the court has made interesting comments on strategically aligning and managing the EU budget and we look forward to discussing them with Mr. Cardiff. Members travelled to Luxembourg to visit the court two years ago when we met both Mr. Cardiff and Mr. Fennessy and I am delighted they are present. It was an interesting visit to the court and we learned a great deal about its workings. We are looking forward to hearing about the annual report.

Before we proceed, I remind members of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person or persons outside the Houses or an official either by name or in such a way as to make him or her identifiable. By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. If witnesses are directed by the Chairman to cease giving evidence on a particular matter and they continue to do so, they are entitled thereafter only to qualified privilege in respect of their evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given, and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.

I invite Mr. Cardiff to make his opening remarks.

Mr. Kevin Cardiff

This is the third meeting I have had with the committee, but my predecessors have also had meetings. We have the great pleasure as members of the court of trying to engage with every national parliament. Some parliaments do the engagement more or less like this, as a meeting with the EU committee of the relevant parliament, while others do not do it at all. They do not think this is important for them.

We call ourselves the guardians of the EU finances, but of course we are just one part of an elaborate structure both for making payments from the EU budget and for protecting the budget from inappropriate use. The purpose of this session traditionally is to talk mostly about our annual report. The report is the court's assessment of the legality and regularity of payments during the year, but we also do a set of other reports. We do a specific annual report on each of the 40 or so EU agencies. We do special reports similar to the Comptroller and Auditor General's value for money, VFM, reports looking a little more at the effectiveness of the spend and not just the legality of it, and we give opinions on forthcoming EU legislation, usually when we are asked. This means in a typical year we might produce between 70 and 80 separate products, but of all of them, the annual report is the most significant and it takes approximately half our resources to produce.

Most EU spending in Ireland comes under the natural resources headings such as agriculture. The competitiveness in growth and jobs line in the budget also provides funding to Ireland. That includes a great deal of research spending. On the revenue side, Ireland's contribution is related to the size of the economy and VAT receipts. In 2014, for the first time, it became a net payer. There are different ways of calculating this. On some Commission calculations, that might be a year or two away yet, but basically we are a net payer country now, and from what one hears, that will begin to effect the policy mix in Ireland over the next few years. Traditionally, net payer countries are more demanding in terms of control structures, value for money and control limitation of the EU budget whereas, naturally, the recipient countries have an incentive to prefer an expansion of the budget.

The peak year for net receipts for Ireland from the budget was 1997, and it tailed off since as economic growth improved relative to other European countries, while 1991 was the peak in the receipts in percentage of GNP terms at 6%. In net terms this year, the EU spend in Ireland is more or less neutral but it was at one point 6% of GNP. When we needed it back then, we got quite a lot. Ireland's share of contributions to the EU budget is approximately 1% of the total. The six largest contributors account for three quarters of the revenue. Germany, France, Italy and the UK contribute 60% of the budget, and therefore they are the big payers. When we do our annual report, we take from this huge spend of €145 billion approximately 1,200 transactions. They are sampled on a representative basis more or less randomly within particular constraints. This means that because we sample by the euro, if a transaction is ten times as big as the next one, it has ten times as much chance of getting picked up in our sample. We try to make it representative. This means, though, that for small individual member states, the number of transactions selected would be relatively small.

That means we cannot make big, sweeping conclusions about the legality and regularity of transactions in Ireland because in the course of a year we might only sample six or eight, which is the appropriate proportion relative to the overall budget for Ireland. We give some data but it is not to be used to draw large conclusions. While we make great effort to ensure our sample of transactions is genuinely representative, for the smaller countries especially, the number of sample transactions is too small to make a country-by-country conclusion.

This year, as in all previous years in recent decades, we find the accounts of the European Union are true and fair and a proper representation of the Union's balance sheet, income and expenditure over the year. People say we do not sign off on the accounts but in fact, in private sector accounting, once the auditor has signed off on the "true and fair" criterion, the job is pretty much done. On that basis, the Union is getting a positive outcome from our audit. The treaty requires us to go much further than that and also to consider the legality and regularity of individual transactions, which is why we go into so much detail in the sample of individual transactions across the Union. We audit both the revenue and the expenditure of the EU but the revenue side is relatively simple - it is all between governments so it tends not to have big errors. This year again we found that the revenue side was free of material error. However, we found an error rate of 4.4% for expenditure, which is almost exactly the same as last year. Last year it was 4.5%, so allowing for sampling and so forth, that is pretty much exactly the same.

The EU has various own resources, that is, streams of income, but the total per member state is determined by reference to each member state's national income, GNI. This is by far the most important element of all the revenue calculations. While in the transactions themselves, revenue is free of material error, we draw attention in this annual report and previous special reports to the fact that there can be big changes in the GNI data. The transaction is based on the GNI figures, which are subject to revision. Those revisions can be quite large and they rely a lot on the quality of the product of the central statistics office of each relevant member state. At the end of 2014, there was a row about a sudden, supposedly unexpected demand for additional funds from the UK. What actually happened was that a known statistical problem which had been festering for some years was suddenly solved and the solution meant the UK had a bigger national income than it had previously reported which meant that the amount it had to pay was greater. There was a big rush to come up with a compromise solution that spread the payments. The biggest risk on the revenue side is not that the actual transactions will be wrong but rather that the underlying data will shift and change. If one looks at the Irish CSO data, the first two or three rounds of GDP, GNP or GNI data are always marked as provisional and often change as new information becomes available. The EU figures take account of the changes for previous years in this year's payment but obviously if there is a problem that has festered for many years, the amount can build up. We have looked at this in a special report and made some recommendations but the most important thing is that these reservations or festering problems are dealt with as early as possible.

The error rate on the spending figure of approximately 4.5% varies by type of spending. It is important to note the error rate is not an estimation of fraud or waste. I say it every year.

We understand that.

Mr. Kevin Cardiff

I will not go through it. It is nonetheless important because it is money that, within the rules, should not have been spent. The biggest area of spend is natural resources, mostly agriculture. In agriculture, the most frequent error was the over-declaration of parcels of land. One of this year's examples is the declaration in Spain of a motocross track as being all agricultural land. Most errors are not like that. Most of them are 3%, 4% or 5% over-declarations. It is not that millions of farmers are making huge fraudulent claims; it is that there are many small over-claims.

Is Mr. Cardiff referring to a farmer over-estimating the size of his holding?

Mr. Kevin Cardiff

I am referring to a farmer over-estimating the size of his eligible holding. For example, a grazeable field in good agricultural condition will be eligible but if there are patches of woodland or rock that are not grazeable or if there is a permanent track, they should be deducted. When we go out and audit, we look at all those features and we say they have to be taken out, but we allow a 4% margin of error. We do not start to count something as an error until it is over-declared by 3%, so there is some subjectivity. Someone said to me today that something that is gorse at one point in the year might change over time. Nonetheless, it has been possible for the Irish paying agencies and their own auditors to make reasonably good assessments of these things. That is how we establish an error rate.

In fisheries and rural development as a whole, the largest source of error was non-compliance with environmental conditions. When one signs up for a rural development grant, there are requirements to do things in accordance with environmental rules. The most frequent error in that area is that those environmental rules are not complied with. There are cross-compliance requirements for direct payments which also give rise to errors. A typical example is that more phosphate or nitrogen than is allowable has been spread on a field or that buffer strips have not been respected. The buffer strip is the strip between a watercourse and a field that should not be sprayed at all. Those kinds of cross-compliance events are regular. The rules will change and cross-compliance errors will no longer count towards our error rate because the financial regulations have changed. However, we will do a special audit of those to establish the effect of cross-compliance rules on the environmental element of the agricultural policy.

Europe is trying to do two things at once and it is difficult to achieve both. It is trying to support the farmer and the rural community while also ensuring that the environment is protected. When we looked at water courses and so forth we found that it is difficult to do so with one instrument - the single farm payment - by making it conditional on compliance with the various rules. We recommended that Europe needs more than just this one instrument. At present, as far as the environment is concerned, one of the biggest levers is the agricultural payments. It might be too much to ask of a single policy instrument to cover so many different elements.

However, we will be looking at that issue in an audit shortly.

In the area of economic, social and territorial cohesion, this type of spending often involves purchases of large services infrastructure, such as roads and that kind of thing. In this area, unlike the agriculture area, the largest source of error is non-compliance with procurement rules. If we are spending European money, we have to apply both European rules and, legally, the national procurement rules. Many of the errors that are found are simple errors in procurement. Both EU rules and national rules are complex, and it is all very inconvenient for the beneficiary. However, if we think about it, countries like Ireland may be huge exporting countries that export goods but also services and rely on access to markets in other parts of Europe. For example, if Irish construction firms want to do business in Poland, they are entitled to get the same access to that market as the Polish, so the procurement rules have to work. In this case, it is not about whether the money was spent as intended, in that it will still be spent to build the road, but whether it is being spent in accordance with the procurement rules to support the Single Market and whether it is a true common market. That is why these rules are particularly important.

In the area of competitiveness for growth and jobs, where there is a lot of social spend, we found that incorrectly calculated personnel costs and unsubstantiated claims for travel, where people are paid to travel back and forth, contributed to the errors, and this was especially the case with small and medium enterprises. In the court, we say there is a need to simplify the system in order that the SMEs can cope with it, and the Commission says the same. Everyone is striving to find the balance between simple systems and controls that work while ensuring the people who get the money are spending it in ways that are consistent with the purpose of the funds. For example, we found cases where trainers were being paid more than the approved rate and paid for more hours than they were fulfilling. There were reasonable explanations for that which had to do with the way the particular SME ran its normal day-to-day business and so forth, but it does not always happen that SMEs find themselves able to stick to the rules. If they do not stick to the rules, then Europe is overpaying for particular services, and that means some other beneficiary does not get the money.

Administration of the EU itself tends to be relatively simple and it is the only area of spending which is consistently below the materiality threshold of 2%. There is still room for improvement, mainly in the process for paying allowances and salaries. When talking about administrative spend, allowances and salaries are a huge part of the total. Of course, in this annual report we are auditing the amounts paid on administration and how the transactions are done. We are not evaluating the product.

The court is not saying it is efficient but is just looking at whether-----

Mr. Kevin Cardiff

Yes, for the purposes of this audit, we are looking at whether it is legal and regular.

It could seem quite high compared with what we are spending on competitiveness, given it is €9 billion versus €13 billion.

Mr. Kevin Cardiff

Administration is €9 billion, which I accept is high.

I accept the audit has a very low error rate.

Mr. Kevin Cardiff

On the area of global Europe, which is Europe's engagement with the external world, most errors involved expenditure that was not eligible and should not have been paid in the first place. For example, it might have been outside the period the money was spent but not within the period when it should have been spent. For this area, the error rate is about 2.7%, and it is usually very low. One would expect it to be high in developing countries because one would expect more error and less efficiency. In fact, these transactions are mostly EU to government, which means most of the money is passed directly from the EU to the relevant government. That is a very simple transaction, so there will not be much error. Again, for the purposes of this audit, we do not see how much value that developing country government then gets out of the money, but we do special reports in the course of the year to look at those kinds of issues.

As I said, the overall estimated level of error was 4.4%, which is stable relative to recent years but is a good deal less than in the mid-2000s. While we keep saying that things could be better still, the Commission resists this idea and sometimes the member states resist it as well, and we have to explain why we think that. We think it, first, because 80% of expenditure is done through member states and our auditors say that most of the errors they spot could have been spotted at the member state level and corrected before our audit. That seems to us to be reasonable evidence that, even without very great change in the control systems themselves, things could be better. Second, although the error rate is 4% to 4.5%, reflecting the small size of the average error found, in some areas the number of errors found is huge. In many areas, there are a huge number of small errors contributing to the error rate in some parts of the budget. I recall from last year that in 60% of transactions we would find small errors. For example, in four Irish transactions this year in the agricultural area, three had errors. Each of the errors was very small, so they did not contribute greatly to the error rate, but we have to ask why we keep seeing this level of error. Those two things together suggest that, even without a huge additional spend on control systems, there is more that could be done to push that down.

The Commission does find and correct errors and the member states do find and correct errors before we get to the audit. If it was not for that, the error rate would probably be 1% or 1.5% higher again.

To clarify, those error rates do not relate to the number of errors in the transactions but to the monetary value.

Mr. Kevin Cardiff

That is correct. To take an example, if the Chairman was a beneficiary and was supposed legally to receive €100 but actually received €105, that is a 5% error. However, if we take 100 people like the Chairman, we might find that 60 of them received more than they should, but none received a large overpayment, so there could be a 60% rate of finding an error, but the cost of the error, which is what we measure, is only perhaps 5%.

I will not go through the areas that are up or down a bit this year. One thing we have found this year is that we cannot say clearly what makes the big difference between areas with high error rates and areas with low error rates. Entitlement programmes, where an individual or a beneficiary is more or less entitled to a payment on the basis of relatively simple criteria, have very low error rates. However, reimbursement programmes, where a beneficiary goes off and spends according to particular criteria and then comes back and claims that money, have an error rate that is usually over 5%, which, roughly speaking, makes them twice as error prone. The Commission is actively looking at ways to simplify all the schemes, which we, of course, support. We would say it is important not to simplify it until the point where money gets passed over, regardless of whether the beneficiary is doing the things Europe wants done. Within that constraint, we very much support the efforts that are being made to simplify the systems.

The Commission will soon issue a mid-term review of the 2014-2020 multi-annual spending framework, probably at the end of 2016.

In addition to maintaining controls on the spend, it will also increase focus on the performance and on getting as much value as possible for the amount spent. This is a reasonable hope as the new Commission has made performance a focus and is working on a new performance budgeting system. Somewhat optimistically, it hopes to have results from this in 2016. However, performance budgeting and tying expenditure more closely to actual outcomes are very difficult so I would not blame the Commission if it took a few months longer than this. We have been saying this year that we need an entirely new approach to European spending, with a much greater focus on the value we derived from the moneys. This is pushing an open door to an extent because the Commission, which spends all of these moneys directly or indirectly, is thinking in the same direction. The question is how fast it will be able to move and how much support and co-operation it will get from member states.

The 2014 EU accounts present a true and fair view. The estimated level of error remains persistently above the 2% materiality threshold, so it is big enough to measure and be concerned about but it has not increased in recent years. Reimbursement spending is more affected by error than simple entitlement spending. The efforts of the Commission and member states to make corrections make a real difference but there is scope for further improvement. We know this because we keep finding cases which could have been spotted. While performance reporting will now be the subject of much more focus, it is still relatively weak.

I thank Mr. Cardiff. I will begin with a couple of questions. The first is with regard to the comment that Ireland is now a net contributor to the European Union by a factor of approximately €100 million a year, or €20 for every man, woman and child in the country. Bearing in mind we are still a situation where the economy is running a deficit and we spend more money than we take in, how does our net contribution compare with other countries? Is Ireland the only country in deficit that is borrowing more money to pay into Europe or are other countries in a similar position?

My next question is on the error margins on slides 16 and 17. Slide 16 shows three years of error margins for the EU budget and slide 17 just shows 2013 and 2014. Does Mr. Cardiff have a view on whether these are stochastic changes or whether there is a trend? I cannot tell from just three data points. I am not sure this is not just a random walk through error margins or whether they tell us something on which we can draw conclusions with regard to whether things are improving in certain areas or disimproving in others. I am not sure Mr. Cardiff has the figures with him but no doubt he has examined them back at base. When we look at the trend over seven or eight data points, what does it tell us with regard to the overall European Union budget and the spending areas? Do we see any improvement or is it just a level of randomness with regard to these error margins?

I welcome Mr. Cardiff and his team. I echo the Chairman's first question because many people will be anxious to know the process by which we have arrived at being net contributors and will be concerned to think we are borrowing to contribute. They will also be concerned because they are still suffering the effects of our extraordinary and profound recession. People want to know the position and Mr. Cardiff's thoughts on the matter will be important.

The natural resources heading is predominantly with regard to agriculture. Mr. Cardiff stated there was a 3.6% estimated level of error. He also stated there is very little evidence of fraud and that generally it is not necessarily fraudulent but, rather, the over-declaration of little parcels of land to do with traditional turbary rights, bogland, traditional rights of way and traditional farm structures which go back in title and on the Land Registry for ages. My experience from constituency work is that several things happen. Farmers are denied their payments, which relate to maintaining a sustainable supply of good quality and affordable food. We all know this but it merits repeating. We need the Common Agricultural Policy and direct payments to farmers to achieve these objectives. In seeking these direct payments, farmers are held up indefinitely over these small - often really minute - parcels of land. It delays their payments for months and puts farmers through enormous mental trauma. The process is also expensive. My colleague, Deputy Kyne, might be in a better position to evaluate this because of some of his professional work in the past. I know it puts people through enormous personal trauma and a great deal of expense because they are obliged to bring in professional assistance. I am aware of this practically from my work and it is not a colourful exaggeration. Is the pursuit of people in respect of little parcels of land comprising, for example, a hedgerow, a little bit of what was traditionally common, a bogland area or a right of way not a fruitless activity in many respects? Is it not almost over-bureaucratisation? We know what is involved is not corrupt practice and none of us wants to sustain it because we are all anxious that, for our taxpayers, there is prudent and judicious spending of moneys. However, is this not an inordinate witch hunt which causes enormous trauma and expense and is almost a fruitless endeavour because it relates to little parcels of land? Is it not questionable when we consider the entire process? Will Mr. Cardiff comment on this and does he agree it is wasteful?

There are domestic issues with regard to the timing of the digitisation of the maps and that the private company doing it should be acting much more quickly. I accept this is a domestic question but perhaps Mr. Cardiff will comment on it.

My fundamental question on agriculture is to ask whether we are nitpicking and chasing something for the sake of chasing it. Is this not an industry in itself and a ludicrous imposition on the primary food producers who are keeping high-quality food on people's tables at a competitive price?

The figure of €8.8 billion was mentioned with regard to administration. One of the reasons for a level of alienation, disenchantment and voter non-participation in European elections is the perception the EU has become a monstrous bureaucracy and administrative structure and something of an albatross around the necks of the member states' taxpayers. Will Mr. Cardiff comment on this and on the justification of €8.8 billion in administrative charges?

I wish to ask about the domestic situation in Ireland. Is the popular belief true that Ireland is very compliant - almost over-compliant - and that we have too much of a cap-doffing attitude to Europe? Are we too respectful with regard to idiotic bureaucratic rules and do we follow them to our own detriment? Does Mr. Cardiff see evidence of a higher level of compliance in Ireland in the audited figures? Does he see something to justify the view that we are too good Europeans in this respect?

My fundamental question on agriculture really bothers me. I have a constituency office in Cavan of which I am particularly personally proud.

It has an effective and wonderful staff. They spend an inordinate amount of time dealing with small farmers plagued by this issue because of maps of little parcels of land that, though overestimated, are not even a fraction as large as this room. The problem delays their entire payment, traumatises them and costs them a fortune.

I welcome Mr. Cardiff and the officials from the court. Regarding gross national income, GNI, is the contribution from each country to the overall budget calculated on a pro rata basis? I presume that economies pay more as they grow and less as they shrink, but that there is an overall pro rata equation.

Deputy O'Reilly touched on the issues of natural resources and agriculture. I welcome the reduction in the overall error rate from 4.4% to 3.6% between 2013 and 2014. The figure for direct support payments is 2.9%, less than the headline figure for natural resources, which is itself important. I will not go over those matters again, but there seem to be issues with over-declarations year on year. Each year, I believe we will come to the end of the mapping and digitisation process. Do all countries participate in satellite mapping? There were suspicions that only Ireland was involved, but I am sure that is not the case. Are there persistent offenders or situations arising in different countries?

Regarding public procurement, Irish companies have the option of tendering for EU work depending on the price of the job. Stories have come to light in certain countries of Irish companies, among others, winning contracts that were subsequently subjected to local charges, local arrangements or local interference, with extra money being sought. This resulted in overspending, further claims or contractors pulling out of jobs, leading to re-tendering and higher costs. Have these issues been investigated? Do they form a part of the report? Is it a commonplace practice or more of an isolated situation or myth?

Are the court's recommendations binding, or is it the case that it submits a report and it is for each member state to follow up on that? Can court proceedings be enacted?

Mr. Kevin Cardiff

Ireland is a net contributor, with its largest receipt being under the Common Agricultural Policy. Our payment in is based on our national income and our receipts are based on other characteristics. Naturally, being an agricultural country, we get more from CAP than other countries that have less agriculture. This probably means that, if the only basis for judgment is the net position, we have done a good deal better over the years than other countries that are significantly poorer, but that is because they do not have agriculture while we do. CAP forms 40% of the EU budget, so we got a large chunk of that budget because of our agriculture, while other countries got structural funds that did not amount to as much. If people were to see the figures, they would believe that Ireland had done well out of the EU. Even with our current annual income, we seem to be doing well. There are countries in the same income category that are getting less or paying more in net terms because they do not have the agricultural side of the matter. I have the figures in my pack and I will send them to the committee. Historically, we have done well if that judgment is only based on net contributions, but that is not the full basis. CAP is there for a reason - namely, Europe wanted food security and rural communities to be retained. We have contributed more than the average to that.

The question of why we are hitting the net contributor position now when people are still reeling from several bad years comes down to a simple formula, as was mentioned. The moneys expected are portioned out at the beginning of a period and every country pays a certain proportion of its GNI. For Ireland, GNI has increased more quickly than expected. I do not know the figures because I no longer have responsibility for them, but I bet that my former colleagues in the Department of Finance were not expecting to hit net contributor status for another year or two. In 2006 it looked as though we were about to hit it, but our national income then fell off the cliff and we remained net recipients for a few years more. We are now a net contributor because our growth rates have been higher than expected. It is a negative, but only because of a positive development.

Apart from agriculture, many payments are judged according to the needs of the countries concerned. As a trading country, we ought to benefit over time from the fact that countries like Poland, the Czech Republic and Bulgaria will be brought up to the European average income levels because they will then purchase more of the goods and services that more developed countries like Ireland, Germany and the UK produce. Just as the rest of Europe felt in the 1980s and 1990s that there was some benefit in providing funds for Irish development, we are providing funds for Polish, Bulgarian and Romanian development.

Did Europe have to borrow to fund us?

Mr. Kevin Cardiff

It did. Under the European Financial Stabilisation Mechanism, EFSM, which contributed approximately one third of our bailout package, every country in the EU contributed. Under the European Financial Stability Facility, EFSF, every country in the euro area contributed. Under the IMF support, all European countries contributed because they were members of the IMF. For example, Germany probably accounted for 22% of the EFSF contribution, 19% of the EFSM contribution and approximately 6% of the funds that we got from the IMF. Some countries contributed thrice while others contributed once or twice, but everyone contributed something to our loan. Thankfully, it looks like everyone will get that money back in the amounts and at the time expected. Just as there is a reason of solidarity for us to make contributions to cohesion and development spending in other member states, there was a reason of solidarity, as well as a good economic reason, for them to support us through our period.

Reaching net contributor status now is a simple arithmetic event, in that our income has increased and, as such, so does our contribution. Over time, though, it appears that Ireland has done reasonably well.

On the question of whether it is fruitless to pursue people over small amounts-----

Over very small parcels of land that are effectively under the ownership of-----

Mr. Kevin Cardiff

One must consider the perspectives. I have been sent to represent a group of auditors.

One can imagine that we are concerned with identifying the errors, and when we do, we report them. A couple of years ago we found quite a lot of error in the land parcel identification systems in Ireland. Maybe there was an element of bad timing from Ireland's point of view. The systems were in the course of improvement but we caught them before they had improved. The Commission found the same thing. It is not, incidentally, the Court of Auditors that looks for money back. It is the Commission and the member states that do so. The Commission put a very high number on it and I think it was €118 million or thereabouts.

Mr. Edward Fennessy

It was €180 million.

Mr. Kevin Cardiff

The Irish authorities negotiated then. In part they negotiated on the basis that they were improving the systems. They were increasing the likelihood that this would not happen in the future, that there would not be as many overclaims in the future, and they managed. I was not party to it but I understand there was a debate last week in the Oireachtas and that the sum was reduced from a €180 million demand down to about €45 million or €46 million. I suspect they would not have been able to do that unless they were able to show that they were improving the systems for the future.

Whether it is appropriate to pursue very small amounts is a value for money judgment in itself. It is a judgment whether the gain from chasing that is worth the candle relative to the pain caused to the individual and also the sheer administrative burden in that. We would not have anything to do with that decision. If, throughout Europe, we found there were many overclaimers who never got penalised, we would say that is a problem because then there is no incentive. In the French case, where on a similar basis they have been asked to pay about €1 billion in 2014-----

Mr. Edward Fennessy

It is €1.1 billion.

Mr. Kevin Cardiff

A sum of €1.1 billion is a huge amount of money. The French have a choice. Do they try to pay that out from the Exchequer or recoup some of it from the farmers who overclaimed? If they recoup it, two things are sure to happen. First, there will be pain among the farming community, including small farmers. Second, there is a lower likelihood, although I do not know if it is a much lower likelihood, that the same people will overclaim again. In the Court of Auditors, when we comment on these things, we usually say that if there is a zero penalty for overclaims or zero impact for overclaims on the individual, the incentive problem probably has not been dealt with sufficiently.

On the €8.8 billion for administration, I suppose I am part of that sum and so are my colleagues. It is probably not huge relative to the scale of the effort that is involved in the European Union. Europe spends €145 billion and it is a measure of its power within the European system. The money the European Union has is leveraged. It also has a huge amount of leverage through its legislation and regulation functions, so that means state aid rules, financial supervision rules, working time rules and all those things that are co-ordinated at European level.

It is probably more of a political judgment whether it is worthwhile, and some people have different views. Let us put it this way: €8.8 billion is about 7% of the total spend and the remaining 93% is being passed to beneficiaries. Whether it is sufficiently well managed, we find many problems in the management. If we were to say to the Commission that it has to improve the management of that spending, it would probably say it needs more staff or more administration, not less. Sometimes it would say more bureaucracy, not less. At the moment it is trying to find ways to simplify. It is a balanced judgment. It is exactly the same judgment as members must make here as regards the scale of the Irish administration. The European Union's system is not a UK kind of structure. It is not comprised of 100,000 or 200,000 civil servants. I think it is about 40,000 people.

Mr. Edward Fennessy

It is 14,000.

Mr. Kevin Cardiff

The Irish system has about 30,000 civil servants. For our budget, which is about the size of Irish GDP and therefore a good deal larger than the size of the Irish national budget, the European Commission has a staffing level that is proportionately a lot lower than an Irish or UK administration would have. The Commission manages that by passing as much administration as possible down the line to member states and that is, in truth, where much of the real cost lies. It is a bit intangible but there are two costs involved. First is the cost of administration within the member states and second is the loss of control from the centre. What I am saying to the committee is that the sum of €8.8 billion would not worry me in terms of the number itself. We all have a duty to continue to ensure it is used as efficiently as possible and that is part of what the Court of Auditors does in its performance audits.

On the popular belief that we are overcompliant and cap-doffing, I will ask Mr. Fennessy to answer because he has carried out audits on the European Union for 30 years so he will know whether that is true.

Mr. Edward Fennessy

I will get back to Deputy O'Reilly's question about the farmers being denied payments for small and minuscule disputes about land. First and foremost, I would say that we are not part of the process of stopping any payments. We have only powers of persuasion and we come two years after the event. The errors we report are overpayments that have not been detected. A significant number of the errors we find should have been found by the national administrations, and we put that at about 50%.

The payment process and the process of applying for aid under the European Agricultural Guarantee Fund, EAGF, is such that one has a certain number of entitlements. For each of these entitlements one must have a minimum area of land to activate the entitlements. We empathise with those farmers whose payments are being delayed because of that. I would surmise that these are cases where they have a critical shortage of land to activate all the entitlements they have, and this comes down to the following. There are issues with the land parcel identification system which the Deputy has rightly pointed to. We have pointed these out for a number of years and we will produce a special report later in the year. My understanding, from talking to the paying agency, is that the Irish paying agency claims to be the most efficient in terms of getting payments out. It makes more than 99% of payments on time compared with the UK, for instance, where there are serious difficulties in getting payments out because of the collapse of its new computerised system. The Irish would consider themselves to be way ahead.

With regard to some of the other questions, there was an issue about too much cap-doffing. I do not believe there is. I believe the Irish have a healthy respect and disrespect for authority, in like order. If there is any cap-doffing, it is in our own public interest, perhaps to get more funds, and we are pretty good at that.

Deputy Kyne asked a question about public procurement contracts and how some skulduggery might go on after a contract has been awarded. That can happen. That is why we pay a lot of attention to the public procurement rules to ensure that before a contract is given, the rules in terms of the accessibility of all potential customers are fair and fairly applied.

We have pointed out cases over many years where those rules can be circumvented, where contracts can be carved up and where subsequent additional amounts can come into play. The initial contract is rather meaningless, accordingly. Many things can happen in public procurement, but in terms of the statement of assurance, we can only look at the issues that have to be addressed at the granting of a contract. We can look subsequently through special reports at the reality of what happened to contracts when concluded. We have pointed out numerous discrepancies in what has happened in reality.

Mr. Kevin Cardiff

The trend in error rates is just around a single point. It has not improved or disimproved much over several years. It is quite a bit lower than it was in the early to mid-2000s. After much effort, there was a big shift downwards. The Commission is finding it difficult to get it much lower than it is. We are trying to help by identifying the areas where we think the Commission could look. As to whether our recommendations are binding, we are just auditors. We do not make the legislative or administrative decisions. We do go back and check the following year what the Commission has done with the recommendations we made. In fairness, there is much uptake of our recommendations. I do not know, however, if it is somewhat formalistic rather than wholehearted. There is a good level of reaction and at least some action on all our recommendations.

When there is a breach of rules at the kind of level Deputy Kyne referred to, another body called OLAF, Office Européen de Lutte Antifraude, the anti-fraud body, can become involved. We refer 20-odd cases to that agency every year in cases where we think there is fraud. Other people can also make direct complaints to OLAF.

On whether the rules are too finicky and so forth, in the end those who make the rules are not even the Commission. It makes the lower level rules. Most of the rules are made between member states and in the Parliament. They arrive at the current level of complication for a reason and it is not always a purely administrative reason. There is an awful lot of political horse-trading which has to take place to get the programmes agreed. Sometimes, the high level of control is the quid pro quo for having the payments in the first place. That is something into which parliaments have more input than I have.

I note the committee is involved in COSAC, the Conference of Parliamentary Committees for Union Affairs of Parliaments of the European Union. There are an increasing number of opportunities in national European law for our national parliaments to be engaged in the European policy process. There has been much debate recently in Ireland about the European Central Bank, ECB. The new arm of the ECB, the Single Supervisory Mechanism, SSM, has rules about engaging with national parliaments which are more extensive than the current ECB rules.

The ECB has more or less refused to engage with national parliaments. Will this committee be able to call in the SSM?

Mr. Kevin Cardiff

It is not mandatory but the SSM has an actual procedure for discussion with the structure. In the rules on the fiscal framework, there are rules for national parliaments to be involved.

Like the Article 13 proposal?

Mr. Kevin Cardiff


Several of us attend Article 13 meetings twice a year.

Mr. Kevin Cardiff

We did a landscape review two years ago on the accountability structures for the European Union as a whole. It dealt with some of that stuff. We do keep an eye on it. The role of committees such as this is nascent but growing. It will be interesting to see how this plays out over the next several years.

I thank Mr. Cardiff, Mr. Fennessy and Mr. Macys for attending the committee. We are appreciative of their time and efforts to visit the committee and discuss the annual report of the European Court of Auditors.

The joint committee adjourned at 2.05 p.m. until 12 p.m. on Wednesday, 20 January 2016.