Joint Committee on European Union Affairs debate -
Wednesday, 30 Jun 2021

European Court of Auditors Annual Report: Discussion

Chairman

Apologies have been received from Senator Vincent P. Martin. Ar son an choiste, ba mhaith liom fáilte a chuir roimh an Uasal Tony Murphy from the European Court of Auditors and his team today, Ms Niamh Mahon and Mr. Brian Murphy.

Before we begin, witnesses are reminded of the long-standing parliamentary practice to the effect 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 might 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 witnesses comply with any such direction. Witnesses participating in this committee session from a jurisdiction outside the State are advised that they should also be mindful of their domestic law and how it may apply to the evidence they give.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.

I remind members of the constitutional requirement that they must be physically present within the confines of the place in which Parliament has chosen to sit, namely, Leinster House and-or the Convention Centre Dublin in order to participate in public meetings. I will not permit a member to participate where they are not adhering to this constitutional requirement. Therefore, any members who attempt to participate from outside of the precincts will be asked to leave the meeting. In this regard, I ask any member partaking via Microsoft Teams that, prior to making his or her contribution to the meeting, he or she confirms he or she is on the grounds of the Leinster House campus.

I call on Mr. Tony Murphy to make his opening statement.

Mr. Tony Murphy

I thank the Chair and members. I am happy to present the 2019 annual report of the European Court of Auditors as well as other relevant publications to them today. I would like to thank the joint committee for this invitation. It is a pity I cannot be there in person, especially as it is a new composition of the committee since I was last there. I would like to note that I am presenting exceptionally late this year. However, it is still a pleasure to be here virtually.

When I presented to this committee previously, I was responsible for the annual statement of assurance on cohesion policy in Chamber II, which is one of the major EU policy areas along with natural resources. Since that time I have been appointed the dean of Chamber V and the member responsible for the annual report. Chamber V deals with financing and administering the Union. In my role as the member responsible for the annual report, I am responsible for this product, which is the core product of the court.

As my time is brief, I would first like to speak about the 2019 key figures of the European Union and findings of the court’s 2019 annual report, as well as illustrating how Ireland features in this respect. I will then briefly touch on recently published special reports of the court. In addition to these, I will provide members with a glance of our published opinion on the Brexit adjustment reserve for which I was a reporting member. Finally, at the committee’s request, I will also briefly discuss the next generation of EU funding in relation to the ECA. I hope members find the information pack helpful. It provides more detailed information on the aforementioned topics.

To begin with the key figures for 2019, revenue totalled €163.9 billion, of which Ireland contributed €2.3 billion. Expenditure on the other hand was €159.1 billion and in this regard, Ireland received €2.1 billion in the form of natural resources.

As members can see from the maths here we are now a net contributor to the tune of about €200 million. To put this into perspective, I would say that this expenditure of €159.1 billion represents 1% of EU GNI and, as we often mention, it is around €350 for each EU citizen. The main takeaway from that is that Ireland is a net contributor with a total of €229 million.

I will move on to the 2019 annual report. As I said earlier, this is the core product of the court. We are required to give a statement of assurance which includes opinions on the reliability of the EU accounts and on the legality and regularity of the underlying revenue and expenditures. This is our obligation under the treaty, and these opinions are considered by the Europe Council and the European Parliament in the framework of the discharge procedure.

On our overall findings for these opinions, we concluded that the EU accounts present a true and fair view. Revenue for 2019 was legal and regular. Our opinion on expenditure however, is adverse. The reason for this is that we found a level of error in 2019 of 2.7% across the whole EU budget. Our materiality threshold is 2%. It was just a slight increase compared to the previous year but this is the first year in three or four years that we have had an adverse opinion. The reason for this was that we had a material error in a substantial part of our audit population. Some 53% of our audit population is what we consider to be high risk, and we had an error rate here of around 4.9%. On the basis of this material error in a substantial part of our population, we also had weaknesses in exposed checks and these obviously are a critical element of the control and assurance framework. This led us to give for the first time in a number of years an adverse opinion on EU expenditure.

Obviously, legality and regularity are very important, but performance is also an issue which we cover. For the first year in 2019, we issued a separate performance report where we tried to assess the Commission's systems in place for assessing the impact of the different EU funds in the policy areas. Legality and regularity are sort of a compliance audit where we check compliance, that the money is being spent properly and in compliance with the rules and regulations.

We also produce a number of special reports across a broad range of topics. In 2019 we published 25 such special reports. We had 26 in 2020, and so far this year we have published 12 out of a potential 40 which are planned to be published this year. They cover a multitude of topics such as food safety policy, renewable energy, e-commerce, border controls, fiscal governance and child poverty. Examples of how our reports can be used at the national level include, for example, our report, Combating Child Poverty for which I was the responsible member. It was mentioned in Dáil Éireann during a Private Members' Bill on child poverty.

In addition our report on energy efficiency was widely publicised in Ireland and considered in a call to review energy efficiency grant schemes. Our most recent published reports that include Ireland, both of which were published just last week, relate to climate and the CAP and to dairy market disturbances and the support provided by the EU to farmers. Ireland was a sampled member state in both of these reports.

In addition, yesterday we issued a Covid-19-related passenger rights audit. This may also be of interest.

Members of the committee were specifically interested in INTERREG. A report on INTERREG will be published tomorrow. Ireland was included, but only marginally, in the overall audit scope. It was part of an extended desk review and, as I said, the results will be published tomorrow. Other upcoming reports that may be of interest include: the procurement of vaccines for Covid-19, which is a topical issue; fraud and the CAP; migrant return policy; and INTERREG.

I will move on to the Brexit adjustment reserve. We are required to give opinions on draft legislation, when asked by legislators. We were asked to comment on the regulation that was being set up to implement the Brexit adjustment reserve, BAR. Our comments mainly related the exceptional architecture and design of the BAR. It was welcome in several ways in that it gave much flexibility to the member states and it allowed for a swift reaction to this exceptional situation. This was all positive. However, we wanted to raise that there was a risk that the proposed timing and structure created a lack of certainty. We also had specific issues that were more technical in terms of auditing accountability. The eligibility period has since been extended but we had some issues about how narrow the eligibility period was. There were other issues on eligibility of expenditure, reporting and evaluation.

The topic that is exercising the court at the moment is the NextGenerationEU, NGEU. If we take it with the traditional multi-financial framework, we have a total overall budget for the next seven years of €2 trillion. This is the largest stimulus package ever financed. The objective is to help rebuild a post-Covid-19 Europe. The effective management poses an immediate challenge for all stakeholders, including ourselves. The recovery facility accounts for 90% of the overall resources of the NGEU, of which Ireland should receive approximately €915 million. Compared to the multi-annual financial framework, MFF, the basis for payment is different. The basis for payment is conditional on the achievement of milestones and targets, rather than on costs reimbursement. It is, therefore, a big change from what was there in the past. It will cause many challenges for our audit mandate and scope. In that context, we are currently developing our audit strategy and approach for this.

To conclude, as auditors, we spend much of our time looking back, so I would like to close by looking forward. We are going through an unprecedented and difficult time. The EU is currently shaping its response to the current crisis with NextGenerationEU. As stated earlier, managing the EU's finances in a sound and effective manner will thus become even more important for all stakeholders, including the European Court of Auditors, ECA. My hope is that later this year I will be able to present our 2020 annual report in person, rather than virtually. For now, I thank the committee for its attention. We welcome any questions members may have.

Chairman

I thank Mr. Tony Murphy for his introduction. Deputies Neale Richmond and Ruairí Ó Murchú are first up for questions. I have an observation rather than a question. When replying to members' questions perhaps Mr. Murphy might delve a little deeper into CAP and fraud. He emphasised the two together, so perhaps he can give more detail on that when he is replying.

Deputy Neale Richmond

It is great to see Mr. Tony Murphy back, albeit virtually. It is a shame that we have to do it this way, but such is life at the moment. We look forward to seeing him in Dublin for next year's report. Hopefully, there will not be any more delays, which were unavoidable on everyone's side of things. I give credit to Mr. Tony Murphy, Mr. Brian Murphy, and Ms Niamh Mahon, as well as the wider team in the European Court of Auditors on their work. We discussed before how it is some of the most important work of the European Union, although it is not necessarily the most glamorous, so perhaps it does not always get coverage. When we talk about anything European, it is easy to focus on the simple, controversial and negative, and avoid the 99.9% of hard, rewarding work that so many people do.

I want to touch on two points in the report specifically. I have a third general point, which would be good to touch on, considering this is the first time Mr. Murphy has addressed a committee of this Dáil. Unsurprisingly, I will ask first about the Brexit adjustment reserve fund. I would like clarity on two small issues in relation to the reporting. Can Mr. Murphy give an indicative timeline on when reporting is expected within that process? On the audit of the funds, is that done on a member state basis or on the package as a whole?

NextGenerationEU, NGEU, is a monumental departure for the European Union, not just to agree funding of this nature, but to be able to develop own resources and floating eurobonds. I do not think the gravity of that has been taken into account yet. That is probably understandable when you bear in mind the gravity of so much happening in the world. In his presentation, Mr. Murphy referred to milestones and targets. Could he elaborate further on that?

My third question has absolutely nothing to do with the report but it has everything to do with the work that Mr. Murphy, Ms Mahon and Mr. Brian Murphy are doing in relation to Irish people working in the European institutions. The Government has been working on EU jobs. This committee has had hearings with various stakeholders, including European Movement Ireland and the IEA. If the Chair does not mind, could we take some liberty and talk about the possibilities for Irish people to work in the European Court of Auditors and its related institutions? Many people think first of Brussels, but obviously, Mr. Murphy is in Luxembourg. I hope the Chair does not mind me taking that small liberty.

Chairman

We are taking two members at a time, so Mr. Murphy can bundle his answers.

Deputy Ruairí Ó Murchú

I welcome Mr. Tony Murphy, Mr. Brian Murphy and Ms Niamh Mahon. Deputy Richmond put it well that this might not necessarily be glamorous work, but it is necessary. I will ask a question at some point on the 2.7%, or that huge mistake. If my mistakes were of such a magnitude, I would be happy enough, in particular if dealing with such huge funds. Much of the ECA’s work is to check due diligence and to ensure everything has been done correctly in reports. However, if we deal with something like INTERREG funding, is all the ECA's involvement after the fact? Would Mr. Murphy be fit to answer a couple of questions in relation to funding possibilities or any questions like that?

Chairman

Please go ahead Mr. Murphy.

Deputy Ruairí Ó Murchú

I am not finished. There is no point in my asking the questions, unless he is able to answer them. I suppose I can ask the questions. The worst that will happen is that I do not get an answer.

Chairman

Apologies, I thought the Deputy was finished.

Deputy Ruairí Ó Murchú

That was only the preamble to my preamble. What exactly happened as regards the 2.7%? Like I said, it is not an error of magnitude. I would be interested to know about it. I refer to the European Union and the solidarity shown as regards the vaccines bought for every member state. While we would like it to be further on, it has been somewhat successful. Once again, I assume that reports will ensure due diligence. I suppose from the European Union's point of view a bang for its buck was received.

There could be some interesting reporting relating to certain companies with which there were dealings. Obviously, the European Union has taken out a considerable amount of loans in the past while and we welcome stimulus programmes throughout Europe and see the necessity to keep this going in order that we do not enter a period of recession. What is Mr. Murphy's view of where Europe stands?

A significant conversation is taking place on taxation. People have voiced opinions on what is almost Europe-wide taxation. What is the payback and methodology regarding some of those loans? Where is that conversation at? I would like to address INTERREG funding. We had good news recently regarding the likes of Narrow Water Bridge, which is a vital infrastructural project that would connect north Louth with south Down. It meets many needs regarding connectivity opening the whole area to tourism. Five or six years ago, INTERREG funding of in or around €17.9 million was allocated. Other moneys were also allocated North and South. Obviously, as not all of the i's were dotted and not all the t's were crossed, there was a shortfall and that money was lost. We are at a particular point in that process and everybody is worried about a false dawn and ensuring that all the resources are in place. Has there been much communication from a governmental point of view regarding the possibility of the likes of INTERREG funding? I know the difficulties post Brexit but I imagine that this type of cross-Border project would still fall into that general realm. Can Mr. Murphy give me an update on that?

Mr. Tony Murphy

If I go back to Deputy Richmond's questions, as far as I know, it is 80% pre-financing. This was one of the benefits for the member states. Getting 80% pre-financing is unheralded. It is basically giving countries most of the money upfront in order that they can address the urgent issues straightaway. In terms of reporting, this is one of the issues we raised. As the first claim member states will make to the Commission will not be made until September 2023, the first time we actually get the related claims in will be 2023. As for whether we will audit on a member state basis, the answer is "No". We do a sample of payments across the whole budget area. The BAR will be just one more element of that. While it is a lot of money, it is €5 billion in terms of €160 billion in expenditure. It is very important, particularly so for Ireland because we are getting around €1 billion in the first tranche. That is more or less it in terms of the BAR.

On the NGEU, obviously these plans are being assessed by the Commission and are basically being approved. What we have seen in the sample we looked at is that milestones could be something like a particular law being passed or reforms in specific labour areas. This is where we would have a difficulty. It would be easy to audit them because if the law is implemented, it is implemented and it is fine. As for targets, a hospital in Spain, for instance, has stated it will create 60,000 places in residential homes for elderly people, so that is a target. They are not linked to costs at all, which is the big issue for us. In a way, they are easy to audit from a purely compliance point of view because they can show us that the target has been met. Our issue then, however, is whether it has been met using EU funds in the best possible way and with the NGEU, it is not clear. Are they national funds once they leave the Commission or are they still EU funds? We are looking at the strategy. It is very complicated and is a real challenge for us.

On the point on Irish people, I thank the Deputy. As he is aware, I am constantly trying to promote the EU to the Irish people. We were visiting universities and were doing everything we could until the pandemic stopped us in our tracks. We try to sell the European project and not just the Court of Auditors because the Court of Auditors is a small institution in the overall scheme of things. In particular, it is of vital importance that we get Irish people into the Commission in particular where, basically, policies are shaped. We follow the strategy for EU jobs, which was announced a couple of weeks ago by the Minister of State, Deputy Byrne. We are constantly working on this and have been quite successful. The easiest way to get people in is through a traineeship, which gives them an opportunity to see if they are really interested. That is a good opportunity. In 2019, before the pandemic, we were doing quite well. We had seven trainees here out of a total of about 55 for the whole court. Only Germany had eight so we were quite successful and we hope to continue that when things pick up again. There were still five for 2020 so it is still not bad given the circumstances. They are virtual traineeships, which do not really give the trainees the same insight into working in an EU institution and whether they would like to do that or invest in language skills if needed to do that. On a positive note, we have been successful and have three detached national experts who will start in the court in September. We have been pushing that a lot here. Only 12 are being taken on by the court and we have been successful, in that three are Irish. The big opportunities for Irish people in the institutions involve the Irish language. There are a lot of opportunities in that sphere. The problem the institutions have is that they are all chasing the same people. They have derogations to extend the period and are now at the end of it so they must start getting people in. We have one temporary agent who will start here around September also. We are quite happy that we will have a mini-influx of Irish people into this institution because there are only about 15 or 16 Irish people here, so four coming in even if it is only on a temporary basis is still quite significant. We will try to keep working on that.

Regarding questions about the error and whether it is significant, that is all relative. It is a matter of opinion. Our threshold is 2.7%, which does not seem like a lot. In terms of money, to put it into perspective we are talking about €3.4 billion out of the budget. What I said earlier was that we consider 53% of our policy areas to be high-risk expenditure mainly because they are cost reimbursement. As we have an error rate of 4.9% there, it is quite far away from 2%. Where we have fewer errors is in places like natural resources because direct payments are entitlement-based. You have an area of land and are entitled to X amount. It is far less prone to risk. Obviously, there are other issues - perhaps not so much in Ireland - with direct payments in some member states but that is another issue. Perhaps that is the link to what the Chairman asked about CAP and fraud. That is an ongoing report that will not be issued until next year. There we are looking at things like land grabbing in some member states. It is a bigger issue in some member states than others.

Regarding whether we always look after the facts, auditors tend to come after the event, that is, after the horse has bolted, if you want to put it like that. Regarding the BAR and the NGEU, because of the set-up in the EU institutions, we are often asked to give an opinion so we have a chance. It does not mean that they will take on board what we ask for or what we raise but at least, we have the opportunity to contribute to the process. If things materialise afterwards that we already had warned about, we can say "we told you so.", so there is a role there.

Regarding loans, I used to work at the Directorate-General for Economic and Financial Affairs, DG ECFIN, which at that time was the only treasury loan and borrowing functioning in the Commission. It will oversee this significant lending activity for the NGEU. It has just started. I think it was on the market yesterday or the day before. We will have an audit of debt management by the Commission, which will start quite soon. As these audits take some time because of the procedure, it will be late next year before that is finalised.

On INTERREG, we are auditors and we look at the whole budget. I understand that INTERREG is important in Ireland but in respect of materiality, the Deputy mentioned €18 million, which, in the overall scheme of things, is not a big part of the EU budget. On Government interactions, we are auditors and we are not driving policy. We are purely coming along after the legislation and budgetary decisions have been made to make sure that they are implemented in line with the decisions which were taken.

Deputy Ruairí Ó Murchú

I accept that. I was hoping that Mr. Murphy had a bit of political intelligence or gossip about where these conversations are. I apologise if I am putting anyone under pressure.

Mr. Tony Murphy

Not at all. Sometimes there is a blurred line of where our mandate stops and where we stray into the political domain. We always have to be cognisant of the issue. We definitely would not share gossip as auditors, if the Deputy does not mind. We can have an informal chat some time when we get back to Dublin and talk about what we know. We know what is going on with the loan. It makes sense for the member states to do it in this way because it means that their balance sheets are not carrying this money. It has been transferred centrally to the Commission and is being guaranteed by the member states. It makes sense for member states. All of this is new. It is a significant challenge for us. Are the loans really EU funds that we should audit? The member state has to repay the loan. We can check that the conditionality for giving the loan has been met and then check the repayment schedule and that the repayments come. Apart from that, we can look at the debt management arrangements put in place by the Commission to make sure they are properly set up and that we get the best rates we can. I hope I have answered the Deputy's questions.

Deputy Ruairí Ó Murchú

I appreciate that. Mr. Murphy has not been party to any conversation about future changes regarding a Europe-wide taxation policy or such.

Mr. Tony Murphy

That is highly political.

Deputy Ruairí Ó Murchú

I accept that.

Mr. Tony Murphy

Obviously, we follow what is going on. As a citizen, I have a different interest in it to my interest as an EU auditor, where we just audit what is decided on by legislators.

Deputy Ruairí Ó Murchú

I appreciate that.

Chairman

I was too generous even allowing Deputy Ó Murchú in for a supplementary. I ask him to be brief.

Deputy Ruairí Ó Murchú

Mr. Murphy mentioned flexibility. I know that there have been some complaints that people are worried that member states will have some control over where funds go to deal with the difficulties of Brexit, which impacts on this State more than most. How flexible is "flexible"?

Mr. Tony Murphy

The member states decide on the measures in the first instance. The Commission has a minor role in that regard. It does not approve them in advance. We talked about the risk of a legal uncertainty. Normally, under the MFF, there are operational programmes which are approved by the Commission with a general framework in place for how the funds will be spent. That is not the case for the BAR. Member states have a lot of flexibility. It will be assessed in September 2023, when the projects which are funded are submitted.

Chairman

How flexible is "flexible"? I think I am a little too flexible this morning. I apologise to members. Deputy Ó Murchú's contribution went on for nearly longer than England's celebrations on getting into the quarter final last night. That is a story for another day.

Deputy Brendan Howlin

I welcome Mr. Tony Murphy and his team. People often talk about the dry work of auditors. I am new to this committee. My experience is at the other side of the table, as Minister for Public Expenditure and Reform. I would have been looking at ways to spend money in accordance with rules and trying to find mechanisms to do that. It will not surprise the witnesses that my questions will centre around that perspective. I was responsible for cohesion, INTERREG and PEACE, and co-chaired the special EU programme bodies for five years. In all our interactions, we always had to be concerned about the perspective of the Court of Auditors and the view on the expenditure of European funds in particular. I want to talk to the witnesses about the flexibilities, as they see them, and how the Court of Auditors applies them, especially with the new social challenges. Clearly, the fiscal rules that were holy writ for a long time, by which we were in many cases nailed to the wall, as others were, have evaporated with the pandemic. What was not doable is now doable, with absolute justification. My concern is that this will change back to old habits and that we will be faced with serious social and economic challenges post pandemic. Will we have the flexibilities to deal with that or not? The witnesses might say that it is an entirely political decision but I would be interested in their perspective on it as much as they can give it.

The biggest social challenge for us prior to the pandemic was the housing crisis. We have to provide a significant number of social and affordable houses in this country. What is the definition of a service of "general economic interest", which is excluded from general state aid rules? There seems to be a divergence of views of how that is applied across the Union and the degree of flexibility. I am anxious that it would be clear that investment in social and affordable housing, which is a social imperative for us, would be excluded from state aid rules and would be a service of general economic interest.

The fiscal rules generally have been set aside for the pandemic. Will that flexibility be maintained or will there be a reaction to the level of indebtedness that the Union has? There was always a morbid fear of collective borrowing in Germany, in all my interactions over the years, and it did not want to mutualise debt. We have overcome that. It is an important underpinning of solidarity across the Union. Do the witnesses think that will be maintained and sustained into the future?

Chairman

Before calling Deputy Haughey, I want to say that Deputy Howlin has asked pertinent questions which are probably on all our minds. We are looking for a fairly circumspect response from Mr. Tony Murphy but it is on all our minds and the minds of Irish people.

Deputy Seán Haughey

I thank Mr. Tony Murphy and his team. It is good to see them at our committee again. It is interesting to see that Ireland is a net contributor of €229 million to the EU. We all knew that was the case in recent years but it is interesting and no doubt it will increase in future, all things considered. My first question is a throwback to one from the Chairman of this committee in the last Dáil, Deputy Michael Healy-Rae.

I recall him quizzing Mr. Murphy about grant application forms, criticising the jargon on them, the amount of information sought, the fact that they are not very citizen-friendly and so on. I appreciate that auditors have their job to do but is there any recognition of this problem? Many citizens do not have master's degrees and so forth in applying for various forms of funding, particularly, I suggest, farm payments. Is Mr. Murphy aware of the conflict between the need for efficiency and avoidance of fraud on the one hand and making these grant schemes accessible, from a form-filling perspective, on the other?

As other speakers said, NextGenerationEU is unprecedented. It is a major European Union initiative and is groundbreaking in many respects. Mr. Murphy stated that the European Court of Auditors is developing an audit strategy for NextGenerationEU. Presumably he will say that his organisation will have the capacity and resources to take on this challenge but I ask him to expand on that a little more. What work is being done in that regard? Is Mr. Murphy confident that the European Court of Auditors will be able to monitor, audit and keep close control of NextGenerationEU funding?

Mr. Tony Murphy

I thank Deputy Howlin for the very interesting and thought-provoking questions. He had the luxury of being the relevant Minister when Ireland was not a net contributor but was still receiving more than it gave in.

Deputy Brendan Howlin

Few people would regard that as a luxury.

Mr. Tony Murphy

Probably not.

Deputy Brendan Howlin

Being broke is never a luxury.

Mr. Tony Murphy

I used the word "flexibilities" twice in my introduction in respect of the Brexit adjustment reserve and NGEU. There is an awful lot of flexibility because every member state will propose its own plan tailored to its own needs. It will not be like a diktat coming from Brussels where we want something implemented across the board. It is very specific. In that regard, if it is done well, it should be more effective than having a one-size-fits-all approach.

The housing crisis comes up every time I am in Ireland and I fully appreciate the gravity of the situation. All I can say is that state aid is not included in NGEU. It will not feature at all so there is some scope there in that NGEU is not applicable. As members of the committee will know, some of our errors referenced by Deputy Ó Murchú, such as the 2.7%, are in fact related to state aid. We have state aid issues in different member states. There is very thorough system in place in the Commission. There is a whole Directorate-General, DG, for Competition, that follows all this. Any time we have a problem, we have to sit down with DG members and talk out each individual case. A very serious process is in place. State aid issues are not taken lightly, even in the Commission. It is an issue but, hopefully, NGEU may give some leeway as we move forward, specifically on housing.

I was asked what I thought about as we go forward. In my opinion, there is now no turning back. The tap has been turned on and there is no way to go back. We will not go back to former days. It seems that even the German mentality has changed in that regard, which was one of the bigger obstacles to the idea of borrowing to fund current expenditure. There will be a lot of flexibility in future. It brings problems because we need to get the balance right between flexibilities, and Deputy Haughey also asked about this, and making sure EU funds are spent reasonably. We mentioned figures of €2 trillion over the next seven years for NGEU and MFF. There is also an awful lot of money still to come from the 2014-20 period, which has not been absorbed yet. All these funds are available and, in a way, projects are competing for different funding sources that are now available. There are also issues of urgency and the exceptional nature of some projects. All these things, unfortunately, lead to a higher risk of fraud, for instance. There is no getting away from the fact that the risk is there although I am not saying it will materialise. We have to be aware of that.

On Deputy Haughey's point, we are a net contributor and without a shadow of a doubt our contributions will increase. That is why the work of this committee and the work we do should be more important from an Irish perspective. We do not put systems in place for forms and grants but we criticise them and sometimes state that systems are overly complex. In some cases, member states actually go over and beyond what is required by the EU, which is so-called gold plating. There are many valid reasons for this. As Deputy Howlin said, they possibly want to be deadly sure that the EU will not come along later and ask for money back. Members states are possibly being overcautious. Where we see some potential for progress, and we always talk about simplification, is in grants being replaced by, for instance, simplified cost options or lump sums, where the application process is much easier. If certain criteria are met, a member state is entitled to a certain amount of money. It happens, for instance, with Erasmus grants and all sorts of other areas. It makes things much easier. I fully agree that, at the end of the day, forms should not discourage beneficiaries. We want them to benefit from available EU funding.

Deputy Haughey also asked about the audit strategy and whether we will have capacity in resources. It will depend on the scope of the audit we can do. As I said, we are looking to see what we can do now. There is also the complexity of other funds competing with NGEU funds. It is different from the MFF, for which we give an opinion on the overall budget. For the NGEU, we will be validating claims from each member state. To return to Deputy Richmond's question at the start on whether there would be auditing of the bar for member states, there will not be auditing of the bar but there will be for NGEU because there are specific claims for each member state and they are all different. The plans are established by dealing with these milestones and targets and the claims are then submitted for payment. We will have to look to see that the Commission has done enough work to be able to validate those payments so we can give assurance, in some shape or form, that the money has been spent in compliance with the rules, even if these may be very limited.

To finish on Deputy Howlin's point, there is room for optimism in future in terms of the current mentality being maintained. As he said, there is a big awareness of the social issues throughout Europe, generally, and the problems they have caused in the political dimension too. It is not from a lack of awareness.

Chairman

There are no members indicating at the moment. Does anyone have a supplementary question?

Deputy Brendan Howlin

I have one brief supplementary question. We have traditionally viewed ourselves as good at drawing down European funding. In many ways, we have often said that if anyone else cannot spend it, we will find a way of legally spending it. I am interested in hearing whether that is still the case. Can we improve on our individual capacity to pull down funding? Are we still top players in ensuring that we get anything that is available?

Mr. Tony Murphy

In a way, we are sort of infamous in EU circles because we are so good at absorbing EU funds. I recall that officials from other members states were sent to Ireland to see how it was being done. Ireland's reputation in this regard is not a myth; it is accurate. Absorption of funds is still an issue in the overall terms of the budget, but Ireland is performing above average in that regard. At the end of 2019, we had 60.6% of cumulative payments spent, which was the second highest in the EU after Finland. The Finns obviously learned something from their visits here. The average would be nearer 50%. The newer member states, in particular, have problems in terms of their administrative capacity to draw down funds. In addition to the €2 trillion, there is also still a lot of money left from the 2014 to 2020 period that has to be absorbed. To answer the Deputy's question simply, we still are fairly near the top of the class in this regard.

Deputy Ruairí Ó Murchú

My question is something of a follow-up one and I am interested to hear Mr. Murphy's response. We have talked about how there can be a deficit in capacity when it comes to applying for funds. There is a crossover between ensuring there is proper accountability and transparency and facilitating ease of access for people to put in proposals. I see this in some of my meetings with the special EU programmes body, SEUPB, and in respect of particular projects. At one stage, my wife worked on a project that had INTERREG funding and was operating on a North-South basis and in Scotland as well. She experienced the same issue. That project involved programmes for early childhood education training, the changing lives initiative and training of parents, teachers, etc. in certain methodologies. I have been told by groups and organisations over the years about the very rigorous stuff that sometimes needs to be done involving multiple receipts and so on. It would be a three prices on a light bulb type of scenario. In fairness, the last time I met with the SEUPB, the people there told me that some of the problem is to do with home-grown laws, particularly stuff that relates to health. It is sometimes the case, for example, that it is the northern health boards or the HSE creating a level of difficulty.

What sorts of conversations are happening in Europe in regard to streamlining? I recognise some of that conversation will have to take place at the domestic level. I also accept we need overall transparency and for someone like Mr. Murphy, whether at European or domestic level, to make sure it is not a case of "one for you and two for me" and all the rest of it. However, we also need to make sure projects can be delivered and people are not caught up in bureaucracy. Sometimes when proposals are put in and people are trying to access money for services, they get hamstrung on the basis of incredibly difficult procurement scenarios. I am wondering what the conversation is in regard to streamlining and whether the Court of Auditors is party to it. As I said, I accept that much of this probably needs to happen at a domestic level. It is like every other situation in that we need to get all the stakeholders in the room and ask them to come up with a workable solution, which does not always happen.

Mr. Tony Murphy

We are not a main party to those negotiations or talks. If we come across something in an audit, we raise it as a potential area that should be looked at as we move forward and we will follow up on it in that context. The Deputy mentioned the HSE and other bodies. One of the principles of the EU is subsidiarity, under which certain matters are the prerogative of member states. Going back to what Deputy Howlin said, many social policy areas are still within the prerogative of individual member states. The EU, in effect, gives an amount of money to try to influence policy or improve things in certain areas, but the main driver, as Deputy Ó Murchú said, is at national level.

An issue that can arise in this context is what I refer to as gold-plating. The problem is even worse for us in this regard. If we go to a member state and find it has national rules that are even more onerous than those of the EU, we also have to check those national requirements. Even if the country is okay from an EU rules point of view, if it is not fully respecting its own national rules, then that causes us a problem and may create a formal error. It is not an easy scenario. I think everybody agrees we should try to make it as simple as possible for beneficiaries to benefit from EU funds, respecting, as the Deputy said, that we cannot just give them out without any controls or accountability. We have talked a good deal today about flexibility. Another issue is balance. It is important to get the balance right between the formality of forms, checks and whatever else and having flexibility. I do not know whether that answers the Deputy's question.

Deputy Ruairí Ó Murchú

It definitely does. In a situation where the Court of Auditors finds that domestic rules that must be complied with are overly onerous and not necessarily allowing the level of flexibility that is needed to carry out whatever operations people are trying to carry out, would Mr. Murphy and his fellow auditors have a conversation about it at their level and would they then speak to somebody in the Commission, say, about having a conversation with that member state with a view to introducing streamlining and improvements?

Mr. Tony Murphy

The Commission follows up on any error we find, which means it would be aware of any such scenario. If we raise an issue that is due to gold-plating behaviour in a member state, the Commission will follow it up. Indeed, the Commission often comes up against the same problem itself. It comes back to some member states having a fear about compliance and wanting to be 100% sure there will not be any comeback later on. It varies between member states, where mentality, culture and everything else has an impact. What happens in Ireland is totally different from what we see in some of the eastern and southern member states and even more so in Scandinavia. That is what we find and we try to deal with it. An advantage we have is we see all the different approaches and systems and can sometimes say that such-and-such is happening in a member state, it is a good practice and maybe others can learn from it, and vice versa where there is bad practice. We have something of an advantage over national audit authorities like the Comptroller and Auditor General because we can compare different systems and approaches in different member states.

Deputy Ruairí Ó Murchú

Do I have time for one more question, Chairman?

Chairman

The Deputy may ask a supplementary question.

Deputy Ruairí Ó Murchú

It is another one I am not sure Mr. Murphy can answer.

Chairman

If the Deputy is agreeable, I will allow another speaker in and come back to him later. Murphy's Law is taking over here today.

Mr. Tony Murphy

My assistant, who is with me today, is Brian Murphy. It really is a Murphy takeover.

Deputy Ruairí Ó Murchú

A fine group of people.

Chairman

I would like to home in on a particular issue in reference to the concept of flexibility introduced by Deputy Ó Murchú. I know Deputy Calleary will want to come in on this issue as well as it relates to County Mayo. I acknowledge Mr. Murphy is not the person who designs policy. He is a bookkeeper and all of the rest of it. However, he and his team may be able to help us in terms of signposting. If he is not in a position to provide information on this issue, we would greatly appreciate a follow-up on it. It is to do with houses that are crumbling and falling down in my county and elsewhere. As I said, Deputy Calleary will talk about the situation in County Mayo. This does not come under the category of creativity, enterprise or innovation. A great deal of funding rightly goes to kick-starting businesses as well as the whole area of sustainability, such as changing to green energy and all of that. However, we have an enormous problem with houses falling down slowly.

They are not falling down quickly. We are not dealing with an earthquake scenario, a national disaster that would make every broadsheet and red top say we are dealing with a national tragedy. We have a tragedy in that same vein but it is happening very slowly. We have a scenario of people living in houses that are unsafe and dealing with the mental health side of things. We are dealing with generational issues as well, where young kids have arrived at their teenage years and are still living in these houses. It is placing an enormous burden on so many people. All the members of the committee will be familiar with this issue. I am going to let Deputy Calleary in now, and if Mr. Murphy is not able to signpost this publicly today, it is an issue we would really like to follow up on through our secretariat and perhaps we can be given some sort of signpost on all that.

Deputy Dara Calleary

I thank the Chairman and thank Mr. Murphy for allowing us to take part in the Murphy family reunion.

This is about mica in County Donegal and pyrite in County Mayo. The Chairman has described it pretty well. It is affecting houses and they are literally crumbling. Over the past week I have been struck by the horrific situation unfolding in Miami which was getting all this attention, but houses are crumbling and falling because of this. Literally as we speak, a homeowners' group has gathered with Department officials to try to work through a plan. We are looking to Europe as well in terms of standards and joining us to stand up for homeowners. I know it is not necessarily an ombudsman thing but as the Chairman said, Mr. Murphy may be able to direct us. It has been raised at the petitions committee that European citizens are watching their homes, that they have worked incredibly hard for, crumble beneath them for no reason other than that they were unfortunate enough to buy concrete blocks from a particular place. That is how random it was. One part of the Murphy family may not have a problem and their cousins might have a problem and they might be living next door to each other. That is how random it is.

As the Chairman has said, we are just looking for a signpost on it. These are European citizens who have been phenomenally let down. Thankfully, so far we have had, touch wood, no major incidents but that is only through the grace of God. We are just looking for signposting on it and a signal there is an awareness of this because it is affecting people here. The cladding issue is beginning to take off. The UK is no longer a member state but I suspect the cladding issue we are seeing in London now will start to become apparent in many more cities as well. Building defects and defects from rushed construction will become a European issue and will come to the Court of Auditors because I am sure there are publicly funded projects that have defective building products and materials within them. That will become an issue with European projects, the funding of same and the funding for replacing them. I thank the Chairman.

Chairman

Does Deputy Ó Murchú want to come in on this issue or his previous issue?

Deputy Ruairí Ó Murchú

This issue should be dealt with on its own. Perhaps I will be allowed come in afterwards. The question has been very well put by the Chairman and Deputy Calleary. There are two parts to it, namely, whether European disaster funding is available, and then the wider question of regulation, which the EU has sometimes been better on than member states have. I would like to come in after this if I could.

Mr. Tony Murphy

There are EU funds for earthquakes and things like that - solidarity funds. I do not know whether things like this would feature under that. We can have a look into it for sure. First of all, I sympathise with all the people who are affected by this. Obviously we follow it here as well on Irish news etc. In fact, Mr. Brian Murphy's mother-in-law is one of these affected people, so we have practical experience of it here. It is not as if we are living in an ivory tower and not aware of what is going on. We will look into it. I am unsure if there is specific EU funding or whether this is, under subsidiarity, delegated to the member states, but we will have a look at it and if we can find anything, we will definitely get back to the secretariat.

Chairman

I appreciate that. It brings it so close to home to have that connection through someone on your own team, so you know at first hand what the situation is. Does Deputy Ó Murchú want to come in on his supplementary of supplementaries?

Deputy Ruairí Ó Murchú

Go raibh maith agat a Chathaoirligh. In fairness, that last issue is an incredibly serious one. If there were some sort of modality to deal with it in Europe, it would be very beneficial.

Over the years there was probably an element of the EU which was overly protective of the market, and its own rules on state aid and everything had to be thrown out the window in the past while with the pandemic. I imagine if anyone needed an argument for the necessity, for want of a better term, of big government, this showed that sometimes it is only the state that can do business, particularly in a period like this. There has obviously been a short-term curbing of those protections for the market, private enterprise and all the rest of it. However, I imagine there is a conversation at European level at this point on how some of that would have to be curbed into the future to give the state, and states working together on a Europe-wide basis, the capacity to deliver. In fairness, even though there were hiccups in the beginning, the vaccine scenario showed that even where there was not a competency but there was agreement and organisation, you could get serious business done which delivered for people.

Mr. Tony Murphy

Was that a question or more of a comment?

Deputy Ruairí Ó Murchú

Is Mr. Murphy aware of a general conversation? I appreciate he is not going to be able to go into the ins and outs of what exactly the European Commission is proposing as if somebody told him in the corridor last week and he were going to give it to us now in public session.

Mr. Tony Murphy

As was acknowledged earlier, we are purely auditors. We meet the relevant Commissioners a couple of times per year and we obviously have to keep independent from them. It is not like we are all meeting up the way they do. They have a college of Commissioners, we have a college of the court. We follow things but we are not really party to the general policy orientation, unless, as I said, we are specifically asked to give an opinion on it. The rest is, as the Deputy says, hearsay and gossip, which is a different scenario.

Deputy Ruairí Ó Murchú

Mr. Murphy has not been asked for an opinion on this in the past while.

Mr. Tony Murphy

Not in the past while, no.

Chairman

Okay. I thank members. We have had a bit of Murphy morning, from Brian Murphy to Tony Murphy to Ruairí Murphy. It is the first time I have called the Deputy Ruairí "Murphy" but it might stick anyway.

Deputy Ruairí Ó Murchú

I have been called worse Chairman. I have been called a lot worse.

Chairman

I thank Mr. Murphy very much. We really appreciate this. It is important from a constituency point of view, but also from a national legislator point of view, to know about the checks and balances within funding. In solidarity with Deputies Calleary and Ó Murchú, I re-emphasise we would appreciate any signposting or direction he can give us on the defective building materials issue because it is placing an enormous burden on so many people. I thank the members for allowing a little flexibility here this morning. It might seem like a constituency-related matter but I know members are in solidarity with every single person dealing with this terrible tragedy, whether they are in County Mayo, County Donegal, County Limerick, County Clare or any other part of the country. I thank everyone. We hope we will be looking to meet up again in 2022.

Mr. Tony Murphy

I hope we will meet even sooner. Our annual report is normally produced in October and we attend before the committee prior to the end of the year. As I say, we are exceptionally late this year because of the circumstances. We would normally hope to come before the committee prior to Christmas. We might be able to give a better update at that time of where we are with, for instance, the Next Generation EU fund and things like that.

Chairman

We are grateful for that and appreciative of Mr. Murphy's contribution and presence here today. I thank him, his team, Brian Murphy and Niamh Mahon, and the committee members.

The joint committee adjourned at 10.50 a.m. until 9.30 a.m. on Wednesday, 7 July 2021.