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Joint Committee on European Union Affairs debate -
Wednesday, 19 Jan 2022

European Court of Auditors Annual Report 2020: Discussion

Cuirim fáilte roimh Mr. Tony Murphy, a chomhghleacaí Mr. Brian Murphy agus a chomhghleacaí Ms Niamh Mahon. They are very welcome to today's proceedings and on the behalf of the committee, I would like to particularly welcome back Mr. Tony Murphy who was with us last year. He will be representing the European Court of Auditors, ECA, today.

Before we begin, I will read the note on privilege and address some housekeeping matters. All witnesses are reminded of the long-standing parliamentary practice that they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable, or otherwise engage in speech that might be regarded as damaging to the good name of the person or entity. Therefore, if a witness's statements are potentially defamatory to an identifiable person or entity, they will be directed to discontinue the remarks. It is imperative that they comply with any such direction.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment, on criticise and make charges against a person outside of 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 requirements that they must be physically present within the confines of the Leinster House complex in order to participate in public meetings. I will not permit a member to participate where they are not adhering to this constitutional requirement. Therefore, any member who attempts to participate from outside of the precincts will be asked to leave the meeting. In this regard, I ask any member who is partaking via MS Teams that prior to making their contribution to the meeting they confirm that they are on the grounds of the Leinster House campus.

Without further ado, I call Mr. Tony Murphy to make his opening statement.

Mr. Tony Murphy

It is a pleasure for me to be able to present the work of the European Court of Auditors here today. I am hoping that we are slowly but surely moving back to the usual situation whereby we could give this presentation physically in the committee room. Hopefully that will happen near future. Among the work that I would like to cover today is the annual report, which is the main product of the European Court of Auditors. I am here today in my capacity as the Irish member, dean of chamber V, which relates to financing and administering the Union and the ECA member responsible for the annual report.

Before I outline the main findings of our annual report, I would first briefly like to set out some key information and figures relating to Ireland in the EU. As members will be able to see on the slid on-screen, revenue for 2020 totalled at €174.3 billion. Ireland's contribution to this figure was €2.6 billion. Most of the contribution from Ireland is based on GNI. In fact, €1.9 billion of this contribution was GNI-related in 2020. The rest, more or less, comes from customs contributions and VAT-based contributions. Expenditure, on the other hand, totalled €174.3 billion. Ireland in this case received €2.2 billion in EU funding in 2020. To put this into context, while this figure of €174.3 billion is an awful lot of money, it represents only 1.1% of EU GNI. As we always say, that works out at approximately €385 for each EU citizen. As members will see, based on the figures of €2.6 billion and €2.2 billion, we have a net budget transactional balance of approximately €360 million. However, as we always reiterate, this transactional balance does not reflect all of the other membership benefits that Ireland has from being a member of the EU, with access to the Single Market obviously being the main one.

The next slide relates to the findings in our annual report. We basically gave a clean opinion of the reliability of the 2020 accounts. This has been the normal opinion for many years by the court. The novelty in this year's accounts was that the Brexit bill was specifically included. As members will be able to see on the slide, the liability of the UK was estimated at €47.5 billion. We gave a clean opinion on revenue. For the second year in a row now we have given adverse opinion on expenditure.

The level of error has basically stayed the same at 2.7%. As we explained in our previous presentation, the first thing we have to check is whether the level of error is below or above our materiality threshold of 2%. Obviously in this case it is above. The second question is whether it is pervasive, and in 2020 some 59% of our audit population was what we consider to be high-risk expenditure. Because of this we consider it to be pervasive, which leads us to give an adverse opinion.

Our audit population in 2020 was €147.8 billion compared with €126 billion in 2019, and 40.8% of this referred to natural resources. Cohesion is catching up at 32.8%. The reason for the increase as I said earlier is the 59% of high-risk expenditure in our population is linked to this increase in cohesion expenditure. To a large degree, for natural resources, direct payments are considered to be low-risk because they are entitlement based and we find very few errors there, whereas in cohesion, we have many issues such as procurement and state aid, infrastructure projects and so forth, and they are not entitlement based. Generally, there are some small areas where we have simplified cost options or lump sum payments. However, in general, they are costs and reimbursement related.

To give a quick overview, I have said our overall error rate was 2.7%. This varies from 3.9% in competitiveness, 3.5% in economic, social and territorial cohesion and around 2% in natural resources. Within natural resources we have direct payments which tend to be around 2%. Then we have rural development expenditure, which is equivalent in a way to the cohesion expenditure, and there we would have a rate higher than 2%. The overall average works out at around 2%.

There are different error types we find on the ground in member states. Some 45% of the error contribution is due to ineligible costs followed by ineligible projects, activities or beneficiaries. As I said earlier, we always have issues with procurement and state aid, so they comprise 19% of the error. A particular problem in 2020 was that lack of supporting documents became a bigger issue, because obviously we could not travel on the spot to member states because of the pandemic. We had issues in some cases getting enough documentation to support our conclusions.

In regard to Ireland specifically, on natural resources there are payments of €60.6 billion across the EU, and Ireland has received €1.6 billion, which is the tenth highest amount of funds from natural resources. Because of this it is quite a significant player in the natural resources field. It was part of the sample. We had 218 transactions from 19 member states on natural resources. Ireland represented four transactions. There was one finding from this sample relating to stock density requirements that led to a quantifiable error. For cohesion, there was no actual sample for Ireland. Proportionately, the money involved is quite small compared with other member states.

To look at how we compare, we come up with our figures, and through its discharge procedure the Commission also comes up with its own error rates, which it calls risk at payment. These are error rates based on payments the Commission has made that have not yet been subject to the control framework. They are still to be audited ex post. Generally, the Commission reports lower error rates than we do. We have 2.7% in 2020 whereas it has around 1.9%. There are reasons for these differences although it can be confusing at times. Our objective when giving an error rate is to give a representative indication of the level of error across the EU budget, whereas the Commission's objective is to try to identify corrections that may be due from member states.

As auditors we must have what we call professional scepticism, so while we are not fraud investigators, within the Commission, the European anti-fraud office, OLAF, is responsible and has now been supplemented by the European Public Prosecutor's Office, EPPO, in Luxembourg. Where we are auditing transactions, if we find anything we think is suspicious, we forward it to OLAF or, in future, to the EPPO. We are not fraud investigators and we would not want to compromise any potential future investigation. Based on our audit work, between 2011 and 2020 OLAF has recommended the recovery of a total of €536 million relating to 37 cases that we have forwarded to it. We now have an administrative agreement signed with EPPO in Luxembourg, and that commenced in June 2021.

On the annual report side, we had a clean opinion on the reliability of accounts and for revenue. The estimated level of error is material at 2.7%, which is the same as in 2019. The same issues arise in that nothing much has changed, as weaknesses in the ex post checks remain. This is what leads to the errors being found. There is a high-risk subpopulation of expenditure which concerns 59% of our audit population. Because of this level of high-risk expenditure, a substantial amount of the expenditure is affected by this material level of error which leads us to an adverse opinion on expenditure.

The annual report is the main product of the European Court of Auditors, but in addition to that we carry out audits on selected topics across a broad range of EU activities. In 2020, we published 26 such special reports covering topics such as food safety policy, renewable energy, e-commerce and border controls. In 2021, we published 23 special reports out of a provisional 34 that were planned. There have been delays linked to the closure procedures because of the pandemic. For the 2021 published reports, Ireland was specifically covered in four: milk and dairy production; long-term unemployment; Common Agricultural Policy, CAP, and climate; and cross-Border programmes. Ireland featured as a sampled member state in four of the 23 published reports.

In regard to upcoming reports, GNI verification is one where Ireland is covered. One which will be of general interest is the procurement of vaccines for Covid-19 throughout the EU. Another which will be of very general interest will be fraud and the CAP. The one which will be published in September 2022 and which it is hoped will comprise some interesting information for Ireland because of the so-called the leprechaun economics, which we spoke of previously, will be the issue of how research and development expenditure is covered in national accounts. The idea is that the audit will cover the Commission's management and control systems for the verification and assessment of the GNI data transmitted by member states. This is important in calculating the GNI contribution that is subsequently payable to the EU budget.

Globalisation was a particular issue, which concerns the treatment of globalisation in national accounts. We have repeatedly made observations and recommendations in our annual reports. For example one is recommendation 3.2 of this annual report. In terms of how the process works, the ECA can set reservations which, if a reservation is made, leaves that aspect open for a number of years subject to the finalisation, and that can have an impact on GNI. It can set a transversal reservation concerning all member states and it has done this with a deadline of September 2022 for the globalisation issue. We will have to wait and see what the impact of globalisation is on the GNI figures for 2018 to 2021, if and when they need to be revised.

This is depending on the figures that are reported by the various member states. If they are revised, there would be recalculations due for GNI.

Another thing of interest is that there are many funds and programmes being launched by the Commission and available to member states. The main one is the recovery and resilience facility, RRF, under which Ireland is due to receive €915 million between 2021 and 2026. The plan includes three priorities: the green transition, digital reforms and transformation and social and economic recovery and job creation. Ireland has not yet requested pre-financing under the RRF. Normally, 13% of a country's total allocation can be drawn down as pre-financing once that country's plan has been agreed. The first instalment is due in quarter 3 of 2022.

Another relatively new source of funding for Ireland has been the support to mitigate unemployment risks in an emergency, SURE, financial support. This, again, is a crisis instrument. It is €100 billion at EU level. The objective is to protect jobs and incomes during the Covid-19 pandemic. As shown the presentation slide, in October 2020 requested €2.47 billion to address the Covid-19 outbreak, which was disbursed in March 2021. This was split as a €1.27 billion five-year bond and a €1.2 billion 25-year bond. The idea of the regulation is that the average time span for the borrowings will be 15 years, so the mix of five and 25 comes up with the average of around 14.8.

Another fund that is more important than the RRF in terms of monetary value is the Brexit adjustment reserve. There was a slight revision compared to the original proposal, and under that revision will receive approximately €1.165 billion in grant form over the period from 2020 to 2025. The objective is to mitigate the impact and the adverse economical, social and territorial consequences of the UK withdrawal. For Ireland, the Commission has already approved a total of €920.4 million in pre-financing. This pre-financing is not like standard pre-financing, where it is basically given up front; it is paid in three instalments over three years. In fact, Ireland is the biggest beneficiary of the Brexit adjustment reserve and will be the first member to receive its pre-financing. It was to have received the first instalment of €361.6 million on 15 December 2021.

That is just a flavour of the different funding that has become available or been disbursed to Ireland in addition to the traditional multi-annual financial framework, MFF, sources for natural resources and cohesion and competitiveness. I thank the committee for its attention and we are open to answer any question, comment or observation that they may have.

I thank Mr. Murphy for his presentation and the specifics as well. The members will want to make a few observations and will have a few questions as well. Senator Vincent P. Martin has his hand up, but that might an old hand-raise. If Senator Martin is not there, I will call Deputy Neale Richmond, followed by Deputy Ruairí Ó Murchú.

I thank Mr. Murphy for his presentation and comments; they are always extremely useful and enlightening in terms of the activities, not just the ECA, but the EU as whole. It gives us a great idea of Ireland's contribution and responsibility.

I have a couple of questions. The first is a general one that is not necessarily specific to the court, but it is in the whole general area of EU jobs and how to encourage Irish people to take up roles in the European institutions. Drawing not just on the position that Mr. Murphy holds now, but the decades of experience he has had across both the ECA and the Commission, what insights might he have in terms of how we can continue to potentially address the slide of Irish people taking up these possible roles.

I have three specific questions on the annual report. Mr. Murphy referenced the latter ones but I will go straight to my first one. He said that this year 59% of EU spending is considered a high risk. That is up from 53% in 2019. Can he elaborate on that? Is this something that needs to be addressed?

I have two questions on my old hobby horse of Brexit. Many others will have questions on Covid response and vaccines, so I will stick true to form, if that is all right. In the so-called divorce bill, the UK is due to pay the EU an estimated €47.5 billion. Can Mr. Murphy give clarity on that figure? Is there a timeline for receiving this and is it a suite of payments or something else? Is this budgeted for it?

Mr. Murphy has no concerns on the Brexit adjustment reserve. This is obviously something that is hugely important for Ireland. It is very important that we receive the almost €1 billion. We see the areas that the Minister for Public Expenditure and Reform is working with a whole-of-government approach. There are quite obvious areas that will need assistance such as the agrifood sector, and logistics and access to the island. Could he elaborate on the concern that it could be spent on ineligible or suboptimal measures? We discussed this much, both at this committee and at various stages through the budget discussion and when we have line Ministers in and through parliamentary questions. Just before Christmas, both Deputy Howlin and I raised questions in the context of Rosslare Europort. The argument that I would make is that out of all the 27 member states, Ireland is the most prepared for Brexit. I do not think there will be any suboptimal measures budgeted for in that reserve, but perhaps an abundance of caution - a term we like to use in many areas - is the theme here.

On that note, I once again would like to thank Mr. Murphy and his team for coming before us and their continuing work. I look forward to having him in Dublin again sooner rather than later, and also getting to Luxembourg in due course.

Mr. Murphy is on mute.

Mr. Tony Murphy

I apologise. I was not sure if I would answer or wait for more questions. I thank the Deputy for his questions. As he knows, I am constantly trying to encourage and get Irish applicants and successful applicants into the EU institutions. We promote it wherever we can. I would definitely welcome the Department of Foreign Affairs jobs strategy. The strategy is in place and now it is about implementing that strategy to get real results. I fully agree with him. In terms of the Commission especially, we need people's bums on seats there because we really need people who are in there who are helping to shape policy and bring perspective to the table.

The European Court of Auditors is a small player in this. It is one of the smaller institutions but, nonetheless, we have been quite successful in attracting trainees proportionate to the other big member states. This year we successfully got three seconded national experts from the Irish Civil Service. There were 12 posts and we got three of them, so we were quite happy with that. Unfortunately, in the end, the third one got an offer to work in the Deputy's favourite field in the embassy in London, working on Brexit and agriculture, which I am sure is a very interesting job. Unfortunately, that meant we lost one. However, we still have a possibility to fill that if we can find another official who would be willing to come.

Another big influx out in the past few months has been in terms of Irish speakers. The derogation on Irish ended in January. For instance, in the court we have three new translators and another on the way; there will be a full team of four Irish translators in the courts. I am very happy to see that happen. Speaking of Irish, language skills is one of the big challenges.

We need to encourage more language learning. Now, it is almost the case that three languages are needed to get through the competitive process. Irish counts as an official language now, and there is English, generally, so usually one more is needed at a good level. The strategy is a start but it is very focused on the public service. We also need people to come from the private sector, if we can attract them. There is probably a lack of awareness. We need to promote the possibilities more in the universities and so on because many people do not know anything about them, which is problematic.

The increase in expenditure is down to one simple reason. Cohesion expenditure is increasing proportionately. It was slow to start off and now it is catching up. Cohesion expenditure by its nature is inherently risky because it is big projects involving state aid and procurement.

The Deputy asked about the Brexit bill. It is quite mathematical. It is €47.5 billion, most of which comes from something that we did not mention in the presentation. The EU has what is called the reste à liquider, appropriations which have been made and are yet to be paid. There was €303 billion of that at the end of 2020. I often found it strange that it was called the Brexit settlement because these were obligations, commitments that were made for projects in all the member states. The UK had a 12.36% share of this. The bulk of the €47.5 billion comes from that mathematical calculation, basically €36 billion. They have discounted it by €1 billion because based on past experience, there is a certain amount of commitments which do not materialise and are cancelled. The vast bulk of the rest of the money is its share of pension obligations for officials. These were obligations that were due at a point in time, December 2020, which were calculated based on their GNI contribution rate. There is a very complicated payment schedule. The payments for 2021 have happened without any issue. If the UK would like to pay it all off in one go the possibility is there but otherwise the payments are scheduled over quite some years.

We had discussions yesterday about the Brexit adjustment reserve, BAR, and where Ireland is. We would hope to utilise fully the available funding through eligible projects. I would imagine it should not be too much of a problem. We are probably the most impacted. There is probably some uncertainty because there are still outstanding issues, the impact of which has not yet fully materialised. They need to be addressed if and when they happen. On the other hand, an issue we raised in our opinion on the BAR was that if we are looking at big infrastructural projects, they can take some time. They will not be finished in a year or two, they can take quite an extensive period. If we discuss developments in Rosslare, for instance, these things will not happen in six months. Someone asked last time how we will audit this. It is one of our issues with how the funding is set. There are three prepayments, as we said and the claim is not made until 2023. We will not see anything until September 2023. I presume the Commission is in constant contact and discussions with the member states on how they are progressing and that there is some toing and froing on the eligibility of projects. I would be hopeful that we will utilise it to the full.

We will move on to Deputy Ó Murchú followed by Deputy Howlin.

I welcome Mr. Murphy once again. Deputy Richmond has probably asked at least two of my questions. I will try to stretch Mr. Murphy as before. He had told me last time that he would have to give a very political answer so he was unable to do so.

I refer to the suspected fraud detected in the audit. Mr. Murphy spoke of OLAF's work between 2011 and 2020, which recovered €536 million. As that involved 37 cases, some of those must have been substantial. It might not be possible to get into the six instances of suspected fraud in the 2020 audit but what detail can Mr. Murphy give about this? Are we talking about a major level of criminality? Where did that happen? I accept there are limits to what Mr. Murphy can say. He is smiling.

Mr. Tony Murphy

Hopefully I am smiling most of the time. Fraud, as the Deputy knows, is a very sensitive issue. We are not a big player in this game. We have to use our professional scepticism. If we see something we report it. That is why six cases is not a huge amount. That is out of about 750 transactions that we audit in a year. We have a fraud team in-house which would do an initial screening based on the auditors' initial feeling. We identified 12 cases from our audit work and then eight from third parties. We have denunciations from third parties as well. Of the 12 suspected cases from our audit work, we forwarded six to OLAF because our legal service felt there was some value in six of the cases. I think that was justified by the fact that OLAF did open an investigation in all six cases.

The six cases cover France, Hungary, Italy, Poland, Portugal and Romania. Five relate to agriculture and one relates to cohesion. They emanate from three different funds. There were three in the European Agricultural Guarantee Fund, EAGF; two in the European Agricultural Fund for Rural Development, EAFRD; and one in the European Regional Development Fund, ERDF. That is probably as much information as I can give to show that it is spread across a number of member states and across a number of different policy areas.

If we do a specific audit, that would be different. Let us say we pursue fraud in the CAP, for instance, as I mentioned earlier. If that is published in 2022 and we find particular instances, they may be given as specific examples as part of an audit work or weaknesses in a member state if we find them. OLAF has its own reporting requirements and it also has some restrictions. That is as much as we can say on that although I believe I can say the type of thing that arises. It might be a grant that is used for a purpose other than that intended. There could be the artificial creation of conditions to obtain funding, which would probably be the main reason that ties in with fraud, that it is deliberate. We have errors that are not deliberate but the artificial creation of conditions is obviously a deliberate act and therefore we would view that as a fraud case.

That probably does not answer the Deputy fully but I hope that it is adequate.

Maybe we could look at getting the report from OLAF on some of the historical information. It is just to get a general run-down.

Mr. Murphy spoke about the audit and the question of GNI.

We have spoken previously about the fact that Ireland has lost out on an element of funding because of the way things are calculated. What is the process and the likely outcome? What will the determination be in relation to any changes? What is possible?

Before Mr. Murphy answers that question, I suggest the Deputy asks any other questions he might have because there is a long line of people waiting to contribute. It would be better for the Deputy to ask all of this questions together rather than going back and forth.

That is fair enough. I do not want to take liberties. I am interested in hearing about the BAR and the RRF, and the draw down of the money. Mr. Murphy spoke about the fact that a certain percentage of the RRF can be drawn down in quarter 3 of 2023. I am trying to understand the free flow and whether it will have an impact on the projects. Beyond that, the question that I usually throw in is the push question. In terms of the issue of fiscal constraint, there is some talk about changing that. We all accept that the rules had to be bent during the Covid period and beyond but I am interested in the outworking of that, combined with whatever major moves states will have to make in relation to doing real business as regards climate change. We will have to look at this whole field. Can Mr. Murphy comment on the conversation that is happening in Europe on that?

Mr. Tony Murphy

On the GNI, it does have an impact. First, it affects the contribution we are required to make. The GNI is a total so if there is a revamping and it is determined that we have paid too much, other member states would pay in accordingly, proportionate to their rate and we would get a refund. I do not know what the final impact will be. What we have ascertained is that Ireland considers that its figures are correct so there is no question there. They do not envisage that they will be changing their figures. The issue then is the impact of any change to the figures of other member states. That would have an impact on the contribution that should have been made from 2018 to 2021. The Commission made a decision that it would not go back any further than 2018. Some member states wanted to go back to 2013 but there was a consensus that it would be too difficult to get the information for such a long period. Obviously, it would have been more interesting for Ireland if 2013 to 2018 was also covered. The fact that the way that the GNI is calculated is different and results in a higher figure would have also had an impact on the funding we received from the RRF, because that was also linked to GNI. I do not know what the outcome will be. This is the exercise that EUROSTAT is currently undertaking. Documentation has to be provided by the member states by September 2022 and it will probably be another year before EUROSTAT finalises its work and comes up with revised figures.

I am sorry to interrupt but is it the case that the means of assessment is not for changing? It will continue to be GNI.

Mr. Tony Murphy

Yes. GNI is the main source of funding for the EU budget, in fact.

The drawdown under the RF is done by way of predetermined instalments and they are linked, in a way, to the achievement of milestones or targets. It is laid out in the plans that different steps will be met by particular dates and they are linked then to the instalment in some way, although not fully, in terms of costs, let us say. That is an issue that we have, as auditors. It is a totally different delivery mechanism which is very far removed from what we see, for instance, in cohesion funding. It is completely different. A plan is adopted at the start to establish a cost for the plan and then, in a way, the costs do not really matter. The issue is basically whether the milestone has been reached or the investment target has been met. If, for instance, the pre-financing of 13% is drawn down by Ireland, it will just be deducted from the first instalment, which is due in 2022 in any case. I think it is €320 million or thereabouts. That is the mechanics of it. It is very much linked to the progress made with the implementation of the plan.

In terms of fiscal change, as the Deputy said, general discussions are ongoing. We are there to audit the decisions taken and are not part of the political decision-making process.

Deputy Howlin is next, to be followed by Senator Keogan.

I will put all my questions in one contribution, if I may. I thank Mr. Murphy for his, as always, very comprehensive submission which is a mine of information that we can use into the future. It will not surprise Mr. Murphy that I want to start with the BAR. We tried to get information on the specifics of this from the chief of staff of Commissioner Ferreira at the Directorate-General for Regional and Urban Policy, REGIO, who appeared before this committee last year. We know that the first instalment was paid in December. This is expected to be a short and sharp expenditure period so as Mr. Murphy rightly says, for capital works we need to be up and running now because the final payment will be made in 2025, with three significant payments paid before that. I am interested in Mr. Murphy's steer on this but it seems to me that it will be problematic from an audit perspective to talk in terms of reimbursing abstract losses as opposed to something that is specific. In terms of Rosslare Europort, temporary measures have been put in place in preparation for Brexit which basically have sited customs, custom checks and immigration checks outside the perimeter of the port, which is something the Commission would never normally accept, for obvious reasons. Bringing goods, cargo and people outside of the port and up the road to be checked, from an audit perspective, is not perfect. The idea now is to rebuild those checkpoints within the confines of the port. It strikes me that this would be an ideal project for funding. Has any pre-clearance request for that come past the Court of Auditors yet?

My second question relates to how things are going to work into the future. Mr. Murphy seemed to imply in his presentation that the European Public Prosecutor's Office, EPPO, will be the new oversight prosecution authority for fraud but in terms of the legislation to partake in that in this jurisdiction, Ireland is not part of the EPPO. A total of 22 of the 27 member states are part of the EPPO but we are not and part of the explanation for that is our common law jurisdiction. How will that fit? Is it expected that in the future we will be part of the EPPO or will there be a different prosecution service for fraud in relation to this country? I am not sure how that would function.

My third and final question relates to - I love the euphemism - errors that Mr. Murphy instances in terms of accounting. We are used to looking at public auditing through the Comptroller and Auditor General and there will always be underestimates and mistakes made. Any business, never mind any State, will have to endure that. Cohesion funding will continue to grow in terms of the volume of money that is spent. I am very supportive of cohesion funding. As Minister for Public Expenditure and Reform, I was responsible for cohesion funding and I chaired the cohesion Council during the Irish Presidency. One of the things that struck me at the time was that unexpended cohesion allocations were not reallocated to eligible projects. The total budget package in the multi-annual financial framework, MFF, that set the expenditure for cohesion funding was not sacrosanct.

Unexpended funding was rebated to member states as opposed to being reallocated to eligible cohesion projects. That struck me as odd. Is that still the case or is all of the allocation for cohesion funding expected to be expended in its totality?

I will make one final observation with regard to the GNI calculation referred to by Deputy Ó Murchú. It was extraordinarily unfortunate that the period of economic collapse for Ireland was excluded and the calculation was made on our economic recovery. I will leave it at "unfortunate".

Mr. Tony Murphy

I thank Deputy Howlin for his questions. The difference between the BAR and the RRF is that the payments are not actually linked to implementation. They are pre-finance instalments and are not linked to implementation in the same way as the RRF. In terms of pre-clearance with us, we had some concerns about the way the BAR was constructed, one of which was the fact that we will not see the expenditure for three years or more. We do not know what is actually going on. We got some assurances from the Commission that there would be ongoing correspondence between it and the member states to check how things were progressing. It is one of the issues that we raised in our opinion. We said we were worried because it is not like the MFF, where we have OPPs and everything is approved upfront. Here, there was a certain amount of leeway or flexibility given to the member states, which is good. What we were saying was that we were worried there could be some legal uncertainty as to the eligibility of the projects when ultimately they are claimed because there was no pre-approval process. That is more a question for the Commission and the Deputy was right to address it to the chief of staff of the Directorate-General for Regional and Urban Policy, REGIO, as to how it is monitoring and managing that. We can only intervene when the expenditure is claimed, in a way.

Does Mr. Murphy expect that because of that, countries are going to be very careful in how they spend money so that there will not be a bill at the end of it? I am just saying that projects like the one at Rosslare are so eminently eligible that they should be prioritised.

Mr. Tony Murphy

Yes. I would not have expected that there would be too much trouble finding a total of €1.1 billion of eligible projects, regardless of where they are or their merits. The point the Deputy makes on the European Public Prosecutor's Office is a good one in terms of common law, the UK and so on. As the Deputy said, 22 member states are part of it, which means a couple of other member states are also outside the confines of EPPO. I do not have a concrete answer on how it is going to work in the future because EPPO is still finding its way. It is in the very early operational stages and the same is true for OLAF. As some of the OLAF functions have transferred to EPPO, there is a little bit of reshaping going on there so the full playing field is not fully determined yet. I would imagine that there will be some pressure to integrate all member states into EPPO at some stage. I presume that would be the objective.

On the issue of errors, Brian Murphy and I both worked previously with the Comptroller and Auditor General's office and aware that it has the luxury of not having to do what we have to do at the Court of Auditors. We are required under treaty to give an opinion on the legality and regularity of the underlying expenditure, which is very unusual. No one else does that, apart perhaps from the Government Accountability Office, GAO, in the US which does something similar. It is a very unusual and specific thing which emanated from the Maastricht Treaty. I believe it was the UK that brought the concept to the table. We are where we are and we have to do it.

On cohesion funding, during the previous programme and period the Commission set up a task force to help member states to absorb the funds. The objective is full absorption. States are given their allocation at the start of the MFF period and the objective is to try to spend it because ultimately, if it is not used, it would revert to the EU budget. That is what would happen. Member states obviously do not want to lose that funding.

I cannot really comment any further on the Deputy's comment regarding the GNI.

Senator Keogan is next, to be followed by Deputy Haughey.

I thank Mr. Murphy for his presentation. How would he suggest the EU should go about tackling non-compliance with the state aid rules by member states that are in receipt of cohesion funding? Deputy Ó Murchú referred to fraud and we are talking about a very significant amount of money, totalling some €536 million. What does Mr. Murphy suggest the EU should do to tackle non-compliance?

Mr. Tony Murphy

State aid is a very complicated area, as the Senator knows. It is a very complex, technical issue. Within the Commission, we have the Directorate-General for Competition, DG COMP, which is ultimately responsible for ensuring state aid rules are respected by member states. What happens for us is that if we have a project where we think there is a state aid involvement, we check the compliance with the rules but we do not set those rules. Basically, we see if the rules are being correctly implemented. This is being managed on a continuous basis by DG COMP.

In terms of fraud, €538 million is a lot of money, especially given that it does not involve many cases. It is only 37 cases, which is a very small number in comparison to the number of cases being handled by OLAF, for example. There are also cases that are referred by the audit divisions in the different DGs and they are much bigger than us. There are country desks in a lot of the DGs that follow specific member states. They would be more aware of things in individual member states. The Commission has implemented anti-fraud strategies but they obviously do not work fully. Fraud, by its nature, involves people who are very clever and very good at getting around the rules. It is very easy to have a paper trail which looks perfect but the reality behind it may not be the same. There are lots of anti-fraud initiatives at Commission level, including the Arachne database, which tries to check for inconsistencies between beneficiaries. There are anti-fraud strategies in place in the DGs. Also, under the RRF, every payment claim that comes from member states includes a management declaration which basically says that the EU budget is protected and that the national and EU rules are respected. This puts the onus on the member states to ensure that happens. That is an issue for us in terms of how we are going to audit the RRF because the Commission has made the member states responsible for the money they receive. Member states are the beneficiaries and it is up to them to make sure that proper fraud prevention measures are in place. The amount of money involved, with the emergency response to Brexit, the RRF and the MFF from 2014 to 2020 still being completed up and the MFF for 2021 to 2027 already up and running, is enormous. There is a lot of funding available and the rush to spend funds obviously increases the risk of fraud, which everyone must be aware of and keep an eye out for.

Deputy Haughey is next.

I thank Mr. Murphy for his comprehensive report, as always. My questions have been touched on already but I will try to drill down a bit further into the issues of the GNI verification and the whole globalisation process. Ireland contributes €2.2 billion to the EU. Mr. Murphy said that he cannot predict the likely outcome of this process but why does he think the process was set up in the first place? What were the reasons for commissioning this investigation? Does Mr. Murphy think that Ireland, as a member state, has anything to fear from the process? Was Ireland first and foremost in the thoughts of those who came up with this process initially? I am interested to learn a little bit more about this whole GNI verification process and why it was established.

Mr. Murphy also touched on the difficulties with auditing the Brexit adjustment reserve in that he will not be able to see the expenditure for three years. There has, however, been a huge increase in expenditure generally by the EU and unprecedented measures have been taken because of Covid-19 and so on. Mr. Murphy has much work ahead of him in respect of the recovery and resilience facility, RRF, the SURE financial support and the Brexit adjustment reserve. Is he satisfied he has all the processes in place and resources to do that, and he is on top of what is about to land on his desk, so to speak?

With regard to errors and irregularities across the board in all schemes and across the EU generally, which I do not believe Mr. Murphy made reference to or was referenced in some of the contributions, where does Ireland as a member state fit into the table? Are we average, above or below average in the number of errors and irregularities?

Mr. Tony Murphy

I thank the Deputy. In terms of the GNI, as I said, I do not think we can anticipate the result but I do not think we have anything to worry about as such. I would not like to fully say it but it is not likely that we will have to pay more because our figures are the ones that are higher than anyone else in terms of this particular issue. Our investigation is not just linked to globalisation. It is looking at the GNI verification process as a whole, and globalisation was a very topical issue within that process. That is why they have decided to look at that as a specific component of the GNI audit.

Effectively, what we are auditing is how EUROSTAT, which is the central statistics office for the EU, is verifying these figures. As we said, those figures are very important in that they ultimately lead to the contribution of member states to the EU budget. We are, therefore, looking at it from a more global - not globalisation - aspect.

As I said, it is particularly interesting for Ireland because of all the different articles and issues over recent years with regard to the particular aspect of the GNI calculations. To be honest with the Deputy, it is in our chamber but we have deliberately stayed away from being directly involved as the reporting member, for instance, just so there is no potential conflict of interest, let us say. It is the standard policy that we would not audit our own member state in such a situation.

The Deputy is correct. In terms of the workload, we have a lot on our plate and we will have more. The multi-annual financial framework, MFF, is already a much-increased level of expenditure. The big unknown is the RRF, however. As I pointed out earlier, the scope of our audit and how far we will be able to go, because of the way it has been set up, may not be the kind of assurance we can give it. I will probably have responsibility for the statement of assurance on the RRF as well. It looks like that is coming my way.

As I said, however, in terms of legality and regularity, because it is a payment to the member state, from a pure first level compliance point of view, if the milestone or investment target has been reached, then the payment is due. That is the condition for payment. We will be checking that and then other things like protection of the EU budget etc. will probably be done by separate compliance or systems audits. The Deputy is right, however. We still do not know exactly the scope of it. There are roughly 40 RRF payments due this year and we will have to look at a lot of them. It is not like a policy area where we get an idea or take a representative sample for a policy area. Here, there are specific member state claims that are all different with no homogeneity between them. We will have to have a broad audit coverage in that regard.

We have been approved for 20 new posts. As members are all aware, negotiating with budgetary authorities in terms of additional staff is always a difficult process. I think we may have looked for 40. I am not exactly sure of the figures. We got 20 with an option to have a review, say, at the end of a year or so to see how it develops and if we have a better idea of the work we will have to do.

In terms of errors, as we said, because of the nature of the expenditure and Cohesion, we do not really feature very much. We were not included in the sample at all. As we stated in the presentation, we had four transactions audited for agriculture and we had one error because the stock density requirements were not met. As I said, most of the Directorates General, for instance, DG REGIO and the DG for employment, have big audit units and country desks where they follow member states. We would be looking at how they classify the control systems in the member states and I would say Ireland would generally be very favourably ranked. That is what I could confirm.

I thank Mr. Murphy. We still have a bit of time in case anybody has a final supplementary question.

While Mr. Murphy is thinking, I will go back to his point regarding the challenge around attracting expertise on the language front across the range. He mentioned that we can do more in the universities. Is there something we can be doing in the secondary schools as well in terms of people looking at their own career paths and potential jobs? I am specifically thinking on the Gaeilge requirements and competency as well. The standards are very high when we are talking about translation and the skill set required for that. Is there something we can be doing in the secondary schools? I am interested to hear Mr. Murphy's opinion on that.

Mr. Tony Murphy

Again, I think some work is already being done there. A Blue Star programme is run that addresses exactly that in secondary schools where they try to raise awareness of the whole EU project, let us say. There is work being done. The earlier people are exposed to this possibility, the better. That is a good thing.

When people move from secondary level to university, the whole focus is on the big four or the big law firms. There is probably a perception that we are all accountants in the Court of Auditors, but we actually have very few accountants. We obviously need some because we have to audit the EU accounts, but as I said, for many of the other reports we referenced earlier, we have many different requirements in terms of competence and expertise. We need lawyers, economists and people from a variety of different backgrounds. Something is being done at both levels. There is work being done at university level, but I do not know whether it could be perhaps more co-ordinated or focused or something like that. It is not easy.

Are there any extra supplementary questions?

It is a small one regarding the special reports. The European Court of Justice has responsibility for that and it crosses a huge number of subjects. How exactly are these carried out by the ECA? It obviously has to take in in-house expertise and so forth. Will there be some sort of reckoning? I get that some of this is easier to do state by state with regard to the impact of Brexit and the change, let us say, in what has happened here in that we have a greater amount of North-South trade. We obviously have a substantial number of people who have looked to Europe and bypassed Britain because of obvious difficulties. I wonder whether this will appear at some point in one of these special reports. Perhaps Mr. Murphy could give a bit of information on those issues.

Mr. Tony Murphy

With regard to the first question, the way the court is set up is in different chambers that are responsible for different policy areas. For instance, we have a natural resources chamber, a cohesion chamber, a competitive list chamber, external aid, let us say, and then we have our chamber, which is financing the EU. Obviously, we need input from all these chambers. The idea is he people in the chambers do the audit work for us and we co-ordinate the plan. We tell them what we expect from them. They carry out the work because they are the experts in these particular fields and we see a value. There is also a synergy with the performance reports they would do in those policy areas. In all the chambers, there would be an element of performance work and this sort of compliance, legality and regularity work. That is just how it works in practice.

In terms of Brexit, I am not sure whether it will feature as an audit. To me, it looks more like it should be an evaluation of the impact by the Commission. I think the matter would fit better there. We will do some work on the costs because that is our main focus. I do not know whether we would do an audit on the impact of Brexit on particular member states. That is maybe more a thing for evaluation by the Commission.

Gabhaim buíochas le Mr. Tony Murphy agus lena gcomhghleacaithe, Ms Mahon agus Mr. Brian Murphy. Is léir go bhfuil an obair atá á baint amach ag Cúirt Iniúchóirí na hEorpa ríthábhachtach agus táimid iontach buíoch díot fá choinne an chuntais phoiblí trédhearcach agus fá choinne an eolais soiléir.

I thank everybody, including Mr. Murphy and his colleagues.

The joint committee adjourned at 11.11 a.m. until 9.30 a.m. on Wednesday, 26 January 2022.