Eurocrats let slush funds stay, says audit
Ambrose Evans-Pritchard
Telegraph - 28/10/2003)

The European Commission was facing a crisis last night after its auditors found Brussels had failed to shut down a network of slush funds and that abuses had spread beyond a statistics office at the centre of the scandal.

MEPs called for the head of Pedro Solbes, the economics commissioner, after a final audit report leaked yesterday said missing records and the total breakdown of financial control at Eurostat, the statistics agency, made it impossible to know how much taxpayers' money had vanished or what it was used for.

Investigators identified the loss of £3 million in "a vast enterprise of looting" by senior officials in Luxembourg, mostly through inflated contracts with outside firms.

After sampling 400 out of contracts worth £320 million from 1999 to 2002, internal auditors found endemic abuse. "Indications of potential conflict of interest and/or insider trading were identified in 29 per cent of cases," they said.

Eurostat kept no central register of its contracts and records were missing "or destroyed" in 54 per cent of cases. "Not even copies of bank statements have been kept," the report said.

The few documents that have come to light from the slush funds, known as "financial reserves", show payments of £7,500 to the "Casino equestrian society" and £1,700 to the "Beaufort equestrian club" but auditors are certain that was just the tip of the iceberg.

Widening the net beyond Eurostat, the inquiry found systemic abuses in almost half of the commission's departments.

In many cases, the auditors were refused documents by the mini-fiefdoms that operate unchecked in Brussels. Caustic remarks jump out of every page: "very little documentation to support contracts", "no check-up on accounting information", "progress and final reports missing in files" or simply "no contract files".

Chris Patten, the external relations commissioner, is likely to come under fire from MEPs for the first time as they study the report this week. He chairs Aidco, the EuropeAid Co-operation Office, which authorised £24 million in contracts "without tender" to one firm.

The company was kept as "sole contractor", mostly for projects in the former Soviet Union, despite objections by Aidco's own finance chief.

Findings contradict claims by Romano Prodi, the commission president, that abuses were stopped after he came to power in 1999 promising "zero tolerance" of fraud.

"There is no evidence on whether, how and when the reserve practices were discontinued. To the contrary, some of these practices still continued in the period 1999-2002," the report said.

While the rules were changed under Mr Prodi, they were not implemented. "Management failed to provide a proper audit trail and transparent procedures. No supervision or monitoring took place."

Lack of records made it impossible to discover any truth to Eurostat staff claims that slush funds were used "to get the job done" in the face of red tape. "We cannot give an opinion on the possibility of fraud involving personal enrichment," said the report.

This summer Mr Solbes angered many MEPs by pleading ignorance. "I can't be blamed or asked to take responsibility for something I don't know about," he said.