EU auditors warn of ‘irregularity or even corruption’ in bloc’s pandemic recovery fund

The EU’s auditing body has warned that the European Commission’s strategy of relying on member states to ensure the money of the pandemic recovery fund is properly spent is heightening the “risk of irregularity or even corruption”.

Speaking to reporters on Tuesday (19 March), the European Court of Auditors (ECA) expressed “serious reservations” about the disbursement of the bloc’s €723.8 billion Recovery and Resilience Facility (RRF) – with President Tony Murphy arguing the EU executive is not monitoring it the same way it scrutinises regular budget expenditure.

“There is less control and self-policing [by member states], so there is a higher risk of irregularity or even corruption,” Murphy said. “There is a lot of money in the system, so we would naturally be worried.”

“Our reports show we cannot yet fully rely on the work of national bodies when it comes to control of EU funds. We therefore have serious reservations,” he added, referring to a recent ECA study on the RRF’s performance monitoring framework.

Equivalent to roughly 4% of the bloc’s annual GDP, the RRF was agreed at the height of the COVID-19 pandemic in December 2020 and comprises €338 billion in grants and €385.8 billion worth of loans, financed through debt jointly underwritten by member states.

The funds, whose deadline for national applications is set to expire in 2026, are intended to stimulate member states’ post-pandemic economies and help finance crucial green and digital investments in exchange for targeted reforms.

A total of €224.4 billion has thus far been disbursed to EU countries, the vast majority of which has come in the form of grants (€144.2 billion) rather than loans (€80.2 billion). The funds have been eagerly taken up by several — though not all — member states, in particular Italy and Spain, the bloc’s third and fourth largest economies.

A fraudulent facility?

The ECA’s warning is not the first time an EU body has openly expressed fears about the potential abuse of RRF funds.

In December last year, the European Parliament’s Budgetary Control Committee said it was “concerned that the EU’s financial interests are not robustly protected in the RRF”.

MEPs pointed to “flaws in member states’ reporting and control systems” as well as “significant differences between member states’ reporting and follow-up of suspected fraud”.

They also specifically called on Finland, Ireland, and Poland to “show that they take the protection of EU funds seriously”.

Similarly, in 2022 the European anti-fraud office OLAF reported that over the previous year, it had “detected and investigated cases” of fraudsters targeting “green projects as well as funding for digitalisation”, both of which are key components of RRF funding.

Despite these warnings, Commission Executive Vice-President Valdis Dombrovskis suggested last month that the EU’s executive body should attempt to exert less, rather than more, control over the disbursement of RRF payments.

During a press conference presenting the Commission’s mid-term evaluation of the facility, Dombrovskis noted that “feedback” from EU countries suggests that “there is room for greater flexibility and simplification” in the “accumulation of data collection requirements for audit and control purposes”.

Dombrovskis’s remarks followed an analysis by the FT highlighting quite significant roadblocks to the utilisation of RRF funds, mainly due to administrative timeframes and lengthy approval processes for structural reforms, upon which the disbursement of RRF funds is conditional, at the national levels.

Dombrovskis called on member states to develop sufficient “administrative capacity to make sure that RRF funds are properly managed, absorbed and put to the best use”.

He also praised the “ground-breaking” initiative for having “benefits [that] are clear and tangible”, pointing to research by the UK-based National Institute for Economic and Social Research which estimated that the RRF had increased EU GDP by 0.4% in 2022 – although that would be significantly lower than previous Commission projections.

[Edited by Anna Brunetti/Zoran Radosavljevic]