Spain, Italy and Portugal are responsible for the bulk of the financial errors detected by European auditors in the field of regional policy, where some €2.7 billion should not have been paid out in 2008.
The European Court of Auditors on Tuesday was for the 15th year in a row unable to sign off the EU accounts, due to a high level of errors in the areas of regional and rural development aid, which account for over a third of the community budget.
But the report notes improvements in the management of agriculture payments, which takes the lion's share of the EU budget (€55 billion). The sector has for the first time been given a green light, having an error rate of below two percent.
Unlike in other years, when naming and shaming misbehaving member states was a taboo for both the European Commission and the Court of Auditors, this time around the three southern countries were highlighted for being responsible for some 80 percent of the errors in the field of regional policy.
"We are witnessing a change of culture from a couple of years ago, when any reference to individual member states was met with strong resistance. Naming and shaming is becoming a reality and should continue," EU commissioner for audit and anti-fraud Siim Kallas told MEPs in the budgetary control committee.
MEPs were in favour of the exposure.
"There are obvious differences between member states. Some of them stick to the rules, others always get red flags. This is unfair, we should get the same rules applied everywhere," budgetary control committee chairman Luigi de Magistris said.
The region of Puglia in south-eastern Italy, which in 2007-2013 is set to receive €2.6 billion from the European Regional Development Fund, has been has been marked down for both its failure to report and correct errors.
In Spain, one multi-million programme and at least 10 individual projects were found to have had errors, while Portugal was too error-tolerant on a multi-million transport funding scheme.
EU's auditors only found two cases of fraud among all the irregularities detected in 2008 and referred 20 fraud complaints to OLAF, Vitor Caldeira, the head of the court told MEPs.
"Cases of error do not automatically mean fraud," he stressed. A large number of errors came up just due to the very complex and often unclear rules and regulations – a mix between EU and national requirements.
As in past years, Mr Caldeira pressed the EU legislature and commission to simplify the rules in regional policy, noting that in the field of agriculture the simplified regulations led to fewer errors.
He also said more efficient audits and checks are part of the answer to avoiding error and fraud in the future. Again, the responsibility for these checks, as well as the management of funds, rests mostly with national authorities.
Advance payments made in 2008 as part of the commission's efforts to combat the recession should be paid attention to, as they could "increase the risk of funds being misused, unless control systems are strengthened," Mr Caldeira warned. An advance of more than €11 billion was paid out last year, aimed at helping regions and local communities to cope with the crisis.
Polish Socialist MEP Boguslaw Liberadzki, who will be in charge of the parliamentary report signing off the EU accounts for 2008, said that a lot of member states used the advance payments "to fill their budgetary gaps" due to the crisis. "Election times in different member states may also have affected these appropriations," he speculated.
The EU's auditors also cast doubt on the actual recovery of misspent money, due to a lack of communication from member states when they are responsible for claw backs. Sometimes, member states even replaced ineligible reimbursement claims with new ones, which were also ineligible, Mr Caldeira said.
Regional policy commissioner Pawel Samecki defended the commission's claw back policy. He stressed that in 2009, the EU executive recovered €629 million in incorrectly claimed payments. "We estimate that we will recover another half a billion euro by the end of 2009. This is on top of the €1.5 billion in corrections we made in 2008," he said in a statement.
As payments are stretched out over several years and recovery procedures can also take quite some time, the only reliable figure, in Mr Kallas' view, is that of €18 million, which in 2008 was declared as being lost forever from the EU budget.
Impact on future budget
The auditors' report is likely to have an impact on the pending discussions on EU budgetary priorities beyond 2013, when the current seven-year budget expires.
A leaked commission draft dating back to October put the emphasis on climate change, job creation and foreign policy, suggesting that agriculture and regional aid be reduced.
Mr Kallas said there was clear need for simplification in budgetary priorities - there are currently 545 different programmes in structural funds. "Every programme has its own legal basis. In the new budgetary perspective, we should limit this number," he said.