WOULD you invest in a company that for 11 consecutive years had failed to produce a clean set of accounts? Would you feel comfortable doing business with one of its local subsidiaries knowing that it was exercising unbridled authority to manage its own expenditure with no control and review from head office?

Whether you like it or not, you are that investor, because the European Commission still has not a clue how your tax euros are being spent.

For the eleventh year running, the European Court of Auditors has given a scathing critique of the European Union’s accounts. The official overseer of the Commission’s lamentable attempts at book-keeping presented its report on the EU accounts yesterday. It told the European Parliament that “the vast majority of the payment budget was again materially affected by errors of legality and regularity in the underlying transactions”.

The Court did find improvements, including a new procedure for controlling and monitoring expenditure — the Integrated Administration and Control System, which covers 59 per cent of agricultural spending. However, 37 per cent of Common Agricultural Policy (CAP) expenditure is not covered by the system’s controls. This means that the Court has no confidence that the transactions comply with EU rules or that the transactions underlying the expenditure are sound.

In other words, the Court believes that €16 billion (£10.8 billion) of taxpayer’s money is loose and wandering somewhere in Europe, not subject to proper accountability. This forces the Court to write a red line through the whole of CAP expenditure as “still materially affected by errors”.

The structural funds accounts — €34 billion of development projects, roads, bridges and railways — are also tainted by weak controls. Here the root of the problem becomes apparent. The Commission is reliant on member states to verify that payments are properly authorised and correctly made. In a sample check of 167 projects benefiting from EU structural funds, the Court found evidence that member states had failed to check documents, or to verify that services were delivered or whether recipients of funds were eligible.

And it could get worse. The Court makes pointed reference to the future financing of the CAP and proposed legislation that would make it more difficult to perform its function of scrutiny.

It is clear that the civil service organisations of member states are neither competent nor sufficiently trustworthy to administer with probity such large sums of money. Unfortunately, the alternative, doling out farm subsidies and regional aid from a central administration in Brussels, would require the erection of another, even larger bureaucracy. Inevitably it would be staffed by functionaries seconded from the ministries of member states and the ridiculous payments for phantom olive groves and virtual cows would continue unabated.

The Court’s report could serve a useful function, were the British Government willing to use it properly in negotiations over the EU budget. Given the failure of member states to administer funds correctly, the British presidency should suggest that the payment function should be taken away from member states. Instead, the work should be outsourced to a private sector firm, such as IBM, with the bulk of the paper and verification work assigned to a data processing centre in Bangalore.

In presenting his report to the European Parliament, Hubert Weber, the President of the Court, noted that his annual award of “nul points” to the EU accounts was proving embarrassing to some politicians. His retort: “It is only though good functioning of our institutions and high-quality management that the legitimacy of the Union will be assured.”

Virgin's ruin in the sky

OPEN SKIES — the words evoke a splendid vista of expanding horizons. How sad that the eponymous EU-US air transport talks are really about the right of a few ageing airlines to monopolise a strip of concrete at Heathrow.

If you want to understand Open Skies, keep your eyes to the ground, because an airline’s worth is not measured in aircraft but in legal rights to take off and land at an airport. Both BA and Virgin Atlantic make the bulk of their profit flying from Heathrow to a few American cities, rights that they share with American Airlines and United Airlines but no other carriers.

Access to Heathrow is the big issue and the reason the previous attempt to secure an EU-US pact failed. The Americans have finally agreed to treat Europe as one nation — any EU airline can fly from any EU airport to any US destination.

A potential disaster for Virgin Atlantic — which only exists because of the duopoly it shares at Heathrow with its pretend enemy, BA. For the latter, America is dangling a bribe, a hint that Congress might relax airline ownership restrictions, allowing BA to take control of its partner, American Airlines.

For Virgin, it could be ruin. If any rag tag and bobtail can fly from Heathrow to New York, Virgin will be fighting off a challenge from Estonian Air on a 25-year-old jumbo jet routed from Tallin to New York via Heathrow.

carl.mortished@thetimes.co.uk

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