The Court of Auditors was unable to give the Commission a clean bill of health for its management of funds. The President of the Court, Bernhard Friedmann, in presenting his annual report to MEPs, said the Court had covered irregularities and cases of fraud amounting to 5.4 per cent of the Ecu 77 billion 1996 budget, or a total figure of Ecu 3.7 billion.
Mr Friedmann singled out duty-free zones, VAT on exports where the tax is collected in the country of destination, and the EU's preferential tariff arrangements, as areas prone to fraud. False certificates of origin were being used to export goods and to take advantage of cheaper rates of duty. Indeed, in one case, it was discovered that the volume of orange juice imported into the EU from one particular country with advantageous rates of duty amounted to three times the production capacity of the country concerned. Duty-free ports, where goods are stored for up to 45 days after unloading, are notoriously difficult to police. The court's report singles out Tilbury Freeport as one zone where controls are weak and duty-free goods are not separated from other goods liable to import duty.
In Ireland, the report comments that security arrangements are worse, or nearly non-existent; the authorities rely almost totally on documentary records to control the flow of goods.
Mr Friedmann had some particularly harsh comments to make on the management of farm spending. He said the failure of ministers to adjust EU subsidies to cereal farmers at a time of rising world prices cost the taxpayer some Ecu 3 billion. The situation was hardly any better in the beef sector, where excess payments of around Ecu 800 million were made because the relevant regulations were not changed at the right time. Indeed the report notes that compensation for some 1,695 cattle in England, under a Ecu 34 million beef marketing payment scheme, should not have been paid since the animals were over 30 months old and thus considered prone to BSE.
Mr Friedmann then turned his attention to tobacco, and questioned the policy of continuing production subsidies, amounting to Ecu 6,800 per hectare, or five times the market value of the product concerned.
Further enquiries discovered that controls by the Greek administration were non-existent. Fraud was known to the national authorities. In fact the Greek authorities were forced to repay Ecu 82 million, and the Italians Ecu 18 million, following the discovery of irregulations in the tobacco sector.
The Commission accepted the criticisms, with Budget Commissioner Liikanen emphasising his concern to seek improvements in the management of EU finances. Indeed, he said, these would be seen in the 1998 budget. He accepted criticisms of the management of the cereal sector, but pointed out that it was the Commission that had made proposals to rectify this. Unfortunately they were not accepted either by Council or the European Parliament.
He was pleased to note that improvements in some areas of the management of the CAP had been recognised, although he accepted criticisms of the regional fund. These have been acted upon, he said, and the rules on eligibility for funding have been changed. The overall conclusion by the Commissioner was that the EU budget was financing too many small-scale projects: many objectives were difficult to control. Reform, he said, should concentrate on simplifying goals and bringing more areas of spending together.
Mr Friedmann also accepted a point made by John Tomlinson (UK, PES) that the Member States responsible for handling some 80 per cent of EU funds also had considerable responsibility for proper management of the funds.