Integrated Financial and Accountability Reporting 2023 PDF

Integrated financial and accountability reporting Overview #EUBUDGET FINANCIAL YEAR 2023 2023 INTEGRATED FINANCIAL AND ACCOUNTABILITY REPORTING Budget The European C...

Integrated financial and accountability reporting Overview #EUBUDGET FINANCIAL YEAR 2023 2023 INTEGRATED FINANCIAL AND ACCOUNTABILITY REPORTING Budget The European Commission is not liable for any consequence stemming from the reuse of this publication. Luxembourg: Publications Office of the European Union, 2024 © European Union, 2024 The reuse policy of European Commission documents is implemented based on Commission Decision 2011/833/EU of 12 December 2011 on the reuse of Commission documents (OJ L 330, 14.12.2011, p. 39). Except otherwise noted, the reuse of this document is authorised under a Creative Commons Attribution 4.0 International (CC-BY 4.0) licence (https://creativecommons.org/licenses/by/4.0/). This means that reuse is allowed provided appropriate credit is given and any changes are indicated. For any use or reproduction of elements that are not owned by the European Union, permission may need to be sought directly from the respective rightholders. All photos © European Union, unless otherwise stated. Print ISBN 978-92-68-18352-6 doi:10.2761/475846 KV-05-24-545-EN-C PDF ISBN 978-92-68-18351-9 doi:10.2761/286 KV-05-24-545-EN-N Integrated financial and accountability reporting Overview Foreword 2023 was marked by the continuing impact of Russia’s invasion of Ukraine, a volatile global economy, and a shifting geopolitical landscape. In responding to these challenges timely and with determination, the European Union proved once more that unity and solidarity are Europe’s strongest assets. To ensure that the EU would have the means to address Europe’s most urgent needs effectively, in 2023 the Commission made a proposal for a mid-term revision of the long-term EU budget. As a result, in early 2024 an agreement was reached to increase the budget. The integrated financial and accountability package is testament to the EU’s commitment to directing funds to where they are most needed and to ensuring the efficiency and transparency of spending. The package shows the tangible results of EU funding and provides an overview of the past, present and future challenges of EU finances. Looking at the present, the annual management and performance report shows the EU budget’s support for the EU’s political priorities and its achievements. The annual accounts provide the current overview of EU finances, including information on contingent liabilities, financial commitments and other obligations of the Union, as well as on the implementation of the EU budget for the past year. The package also includes the outcome of the discharge procedure and the recommendations by the Internal Audit Service, highlighting our continuous efforts to improve the management and implementation of the EU budget. Finally, the long-term forecast of future inflows and outflows rounds off the package with 5-year projections and a presentation of the key drivers for the implementation of the main spending areas of the budget. This integrated financial and accountability package is a concrete expression of our continuous commitment to highest transparency and reporting standards. It provides a comprehensive picture of EU finances and of where EU taxpayers’ money goes. The EU budget turns unity and solidarity into figures and provides the financial means to make Europe more competitive and more resilient. Johannes Hahn, European Commissioner for Budget and Administration Contents Introduction.........................................................................................................................................................4 Section I. Highlights of the 2023 EU budget and NextGenerationEU — delivering on priorities in times of crisis............................................................................................... 6 Section II. EU annual accounts — providing an accurate picture of EU finances.........15 Section III. EU budget financial management and internal control...................................29 The EU budget in a nutshell.................................................................................................................41 3 Introduction The integrated financial and accountability reporting package brings together comprehensive information on the implementation, performance, results, sound financial management and protection of the EU budget in 2023. It consists of five reports. The 2023 annual management and performance report and its annexes provide an overview of the performance, management and protection of the EU budget, including the performance and compliance ISSN 2599-7092 Annual Management and Performance Report for aspects of the Recovery and Resilience Facility (RRF). It explains how the the EU Budget Volume I EU budget and NextGenerationEU support the EU’s political priorities and describes both the results achieved with the EU spending programmes by the end of 2023 and the role of the European Commission in ensuring #EUBUDGET FINANCIAL YEAR 2023 2023 INTEGRATED FINANCIAL AND ACCOUNTABILITY REPORTING Budget the highest standards of financial management. The consolidated annual accounts of the European Union provide a single and comprehensive source of audited figures giving details of the EU’s financial position (assets and liabilities), contingent liabilities, risk management information and budget implementation, consolidating all EU institutions and bodies. They also give extensive information on the off-budget borrowing and lending activities, as well as the financial instruments and investments. They are produced in accordance with the International Public Sector Accounting Standards. The report on the follow-up to the discharge for 2022 summarises the actions the Commission is taking or will take in response to requests made by the European Parliament and the Council of the European Union during the discharge procedure. The requests cover wide-ranging topics and help the Commission to further improve the way it manages the EU budget. The Commission report to the discharge authority on internal audits carried out in 2023 presents an overview of the recommendations made by the Internal Audit Service (IAS) and the actions taken on those recommendations to improve the Commission’s governance, risk management and control processes. The long-term forecast of future inflows and outflows of the EU budget (2025–2029) provides the payments and revenue forecast covering the new multiannual financial framework (MFF), and the European Union Recovery Instrument – NextGenerationEU (NGEU). 4 These documents provide essential input for the annual discharge procedure, through which the European Parliament and the Council of the European Union hold the Commission accountable for how it manages the EU budget. This brochure highlights the key messages of these reports and explains the main features of the EU budget. 5 Section I Highlights of the 2023 EU budget and NextGenerationEU Delivering on priorities in times of crisis 6 Section title Highlights of the 2023 EU budget This Commission’s term has been marked by a string of unprecedented crises requiring fast and effective solutions to protect people’s lives and livelihoods in the European Union. 2023 was yet another significant year, in which the EU continued to meet the aspirations of its citizens and to address challenges as they emerged. At the same time, the European Commission stayed the course on the six priorities set out at the beginning of its term and devised comprehensive solutions, especially in relation to the twin green and digital transitions. As the EU recovered from the effects of the pandemic and continued building a more competitive and resilient economy, Russia’s war of aggression in Ukraine intensified in 2023, with a wide range of devastating consequences. The geopolitical situation deteriorated further after the terrorist attacks by Hamas on Israel on 7 October, followed by a full-blown war in Gaza that has had a catastrophic impact on the humanitarian situation there. The EU budget and NextGenerationEU have enabled the EU to support Ukraine and to address the consequences of the wars in Europe and the Middle East, including the disruption of energy markets and high inflation, along with natural disasters and humanitarian crises. Although the EU budget has played a strong and effective role in addressing unexpected crises in recent years, there is a limit to what it can do. In 2023, not even halfway through the current multiannual financial framework, the framework’s flexibility was being depleted. Therefore, to ensure that the EU budget had the most essential funding to be able to deliver on shared priorities and needs, the European Commission proposed a targeted revision of the multiannual financial framework. This led to an agreement in February 2024 on the mid-term revision of the EU’s long-term budget. This included, for the first time ever, a revision of its expenditure ceilings. In line with the priorities identified by the Commission, this allows the EU to provide stable support to Ukraine in the coming years, to continue addressing migration and external challenges and to strengthen Europe’s competitiveness and sovereignty by means of the Strategic Technologies for Europe Platform, among other initiatives. Highlights of the 2023 EU budget and NextGenerationEU 7  Graph 1 Overview of the midterm revision of the EU’s long-term budget for 2021-2027 Migration and border management 2 Migration and borderNeighbourhood management and 2 the world 7.6 Neighbourhood and the world European Defence Fund under the 7.6 new Total European Defence Strategic EUR 64.6 billion Fund underfor Technologies the new Total Strategic Europe Platform Ukraine Facility EUR 64.6 billion Technologies for instrument 50 Europe Platform Ukraine Facility 1.5 instrument 50 Reinforcement1.5of some special Reinforcement of instruments some special 3.5 instruments 3.5 Total EUR 64.6 billion Total EUR 64.6 billion 33 10.6 21 33 10.6 21 In loans Redeployed from Additional contributions In loans Redeployed other budget areas from Additional contributions by Member States other budget areas by Member States Source: European Commission. Highlights of the 2023 EU budget and NextGenerationEU 8  GRAPH Ukraine EU budget contributions to help Ukraine and Member States face the consequences of the war in 2022 and 2023 Macrofinancial Neighbourhood, Development and International assistance loans Cooperation Instrument – Global Europe EUR 25.2 billion and European Neighbourhood Instrument EUR 2.3 billion Support under cohesion policy(*) EUR 15.3 billion Humanitarian assistance EUR 785 million Home funds EUR 400 million Civil protection EUR 160 million Other programmes (**) EUR 160 million Connecting Europe Facility Outside the EU budget: EUR 202 million European Peace Facility (including the EU Military European Investment Bank and European Assistance Mission Bank for Reconstruction and Development in support of Ukraine) supported through EU guarantees EUR 6.1 billion EUR 2.6 billion Allocations to Ukraine and Member States to face the consequences of the war from the EU budget and outside the EU budget for the European Peace Facility in 2022 and 2023. (*) Support under cohesion policy refers to flexibility offered through the Cohesion’s Action for Refugees in Europe and Flexible Assistance to Territories packages, covering a combination of amounts invested (or reprogrammed) and liquidity lines made available to Member States. (**) Horizon Europe,allocations Committed EU4Health, European to Ukraine and Instrument Member Statesfor toInternational Nuclear Safety face the consequences Cooperation, of the war from the CommonEU Foreign budgetand andSecurity outside Policy. the EU budget for the European Peace Facility in 2022 and 2023 (in EUR) Commission. Source: European The amounts in this overview do not include the flexibility offered through the Cohesion's Action for To helpRefugees Ukraine in itsand in Europe recovery, reconstruction Flexible Assistance to Territories. and modernisation efforts, the EU has(*)launched a new Horizon Europe, support EU4Health, mechanism European forfor2024-2027. Instrument The Ukraine International Nuclear Facility is Safety Cooperation, Common a dedicated Foreign and Security instrument that willPolicy allow the EU to provide Ukraine with up to EUR 50 billion in stable and predictable financial support during this period, including up to EUR 17 billion in non-repayable support and up to EUR 33 billion in loans. In addition to the enduring war in Ukraine, the terrorist attacks by Hamas against Israel on 7 October 2023 and Israel’s ensuing military action in Gaza have led to a drastic deterioration in the geopolitical landscape and caused a humanitarian catastrophe in Gaza. This has also increased the risk of escalation in the region. Highlights of the 2023 EU budget and NextGenerationEU 9 Emphasising that there is no justification for terror, the European Commission has condemned Hamas in the strongest possible terms for the terrorist attacks. UPDATED With the rise in antisemitic and anti-Muslim hate speech and hate crime experienced21.05 in autumn 2023, the European Commission mobilised the Internal Security Fund to provide EUR 30 million to help Member States protect public spaces and places of worship. Seriously concerned by the deteriorating humanitarian situation in Gaza, the European Commission quadrupled its humanitarian aid, mobilising more than Graph 3 EUR 100 million in 2023. It has been working on overcoming access restrictions in providing humanitarian support to the Palestinian people in order to guarantee a sustained, regulated and robust flow of aid, working together with several Member States and international partners. 32 EU humanitarian air 1 310 tonnes bridge flights of essential supplies EUR 103 million in humanitarian funding Given the increasingly unstable geopolitical situation and the need to strengthen the EU’s ability to provide security and protection across the continent, the Commission has been stepping up security and defence efforts. 2023 saw the enactment of two key initiatives aimed at strengthening the EU’s defence. 1. The Act in Support of Ammunition Production, backed by a budget of EUR 500 million, aims to improve and expedite the EU’s ammunition and missile production. 31 projects covering five areas (explosives, powder, shells, missiles, and testing and reconditioning certification) were selected to assist European industry in increasing its ammunition production and readiness. It is a direct response to the European Council’s March 2023 call to urgently deliver ammunition and, upon request, missiles to Ukraine, along with helping Member States to refill their stocks. 2. Complementing this, the European Defence Industry Reinforcement through Common Procurement Act, with a budget of EUR 310 million, will motivate EU Member States, for the first time ever, to jointly purchase critical defence products from the EU defence industry. Highlights of the 2023 EU budget and NextGenerationEU 10 Moreover, the European Defence Fund, with a budget of EUR 8.9 billion under the 2021-2027 multiannual financial framework (1), provides essential support for defence research and development in the EU. It provided about EUR 2.0 billion for 101 collaborative research and development projects across Member States in 2021 and 2022, and allocated EUR 1.2 billion for 2023. Furthermore, under the military mobility allocation of the Connecting Europe Facility, EUR 808 million was awarded in 2023 to support the transport of troops and equipment across the trans- European transport network, investing in infrastructure that can be used for both civil and military purposes. Despite the challenging background, the EU budget and NextGenerationEU continued to deliver on the Commission’s long-term priorities, including the EU twin transitions in 2023: Together, the EU budget and NextGenerationEU dedicated EUR 159.6 billion, 38% of the total joint budget, to climate-relevant measures. In addition, EUR 19.8 billion, or 5% of the total joint budget, was allocated to biodiversity. According to estimates from a stock-taking exercise carried out by the Commission across the entire EU budget and NextGenerationEU, in 2023 a total of EUR 79 billion, or 19% of the total joint budget, was allocated to EU’s digital priorities. Examples of contributions from the EU budget to the green and digital transitions Climate – 29 million people benefited from flood protection between 2014 and 2022 thanks to the interventions financed by cohesion policy funds. – European Solidarity Fund support totalled EUR 755 million following natural disasters in Belgium, Germany, Italy and Romania. – Around 188 000 hectares of agricultural land were afforested by 2022 thanks to common agricultural policy support in the 2014-2022 period. Biodiversity – 20.3 million beehives were supported in 2022 by the common agricultural policy. – More than 100 species are improving their conservation status as a result of 31 LIFE projects. (1) This amount includes a reinforcement of approximately EUR 1.5 billion in the context of the mid-term revision of the multiannual financial framework. The current programming 2021-2027 for the European Defence Fund is EUR 7.3 billion in current prices. EUR 1.5 billion will afterwards be redirected from the European Defence Fund to support the proposal for a regulation establishing the European Defence Investment Programme. Highlights of the 2023 EU budget and NextGenerationEU 11  Digital – 7.9 million additional households had broadband access with a speed of at least 30 megabits per second between 2014 and 2022 thanks to the interventions financed by the cohesion policy funds. – Additional capacity of 3 000 terabits per second was created by backbone networks, including submarine cables, deployed by the Connecting Europe Facility in 2023. The Recovery and Resilience Facility (RRF) gave significant financial support to Member States to foster economic and social resilience and make the green and digital transformation a reality. At the end of 2023, all 27 national recovery and resilience plans of the Member States had been revised, of which 23 included REPowerEU chapters. Through the revisions, an additional amount of EUR 147.2 billion was allocated under the Recovery and Resilience Facility, divided into EUR 21.6 billion in grants and EUR 125.5 billion in loans. The total amount allocated to Member States thus increased to EUR 648 billion at the end of 2023. At the end of 2023 a total of EUR 220.8 billion had been paid out to Member States (EUR 74.4 billion in 2023 alone). The Recovery and Resilience Facility is making a key difference in the lives of EU citizens. Its major achievements include the following: – Green transition. By the end of 2023, thanks to the facility, annual energy consumption had been reduced by 28.2 million megawatts and more than 530 000 refueling and recharging stations for clean vehicles had been installed or upgraded. – Digital transition. More than 5.6 million additional dwellings had gained access to very-high-capacity internet networks by the middle of 2023, and 309 million users were already using new or improved public digital services. – Healthcare. Healthcare capacity has been increased, including in hospitals, clinics, outpatient care centres and specialised care centres. By the end of 2023, thanks to the Recovery and Resilience Facility, up to 45.8 million people annually could benefit from a new or modernised healthcare facility. – Education and training. Some 8.7 million people had participated in education and training and 5.8 million young people aged 15–29 had received support, whether monetary or in kind (i.e. education, training and employment support), thanks to measures supported by the facility by the end of 2023. – Support for businesses. Almost 2 million enterprises had received support – whether monetary or in kind – under the facility by the end of 2023. Highlights of the 2023 EU budget and NextGenerationEU 12  Thanks to the Recovery and Resilience Facility, progress was already made through some key reforms during the first 2 years of its implementation. These include: – digitalising public administration (Slovakia) and ensuring cybersecurity (Romania); – making civil and criminal justice systems more efficient by reducing the length of proceedings and improving the organisation of courts (Italy, Spain); – improving the quality of the legislative process (Bulgaria); – tackling corruption and ensuring the protection of whistle-blowers (Cyprus); – surrounding the labour market and modernising active labour market policies (Spain); – enhancing employment and social protection (Croatia); – fostering scientific excellence and improving the performance of universities and public research organisations (Slovakia) and enhancing the predictability and stability of public research funding (Portugal); – simplifying licensing to boost investment in offshore renewables or to create the conditions for introducing renewable hydrogen (Greece, Portugal, Spain); – supporting the roll-out of renewable energy and sustainable transport (Croatia, Romania); – improving affordable housing (Latvia). In addition, the Recovery and Resilience Facility unlocks the full potential of structural reforms by complementing them with key investments. Some of the major investments with key steps already completed include: – funding for the diversification and shortening of the supply chain of agricultural and food products and building the resilience of entities in the supply chain (Poland, for a total estimated cost of EUR 1.3 billion); – investments to support the decarbonisation and energy efficiency of industry (Croatia, for a total estimated cost of EUR 61 million; France, EUR 1.4 billion); – the purchase of 600 000 new laptops to lend to teachers and pupils and the selection of digital innovation hubs to support companies in their digitisation efforts (Portugal, EUR 600 million); – funds to increase the competitiveness of firms operating in the tourism sector, including 4 000 small and medium-sized enterprises (Italy, EUR 1.9 billion); – investments to support vulnerable people (Italy, EUR 1 billion); – the digitisation of public administration towards digital, simple, inclusive and secure public services for people and businesses (Portugal, EUR 170 million); – broadband infrastructure development (Latvia, EUR 4 million). Highlights of the 2023 EU budget and NextGenerationEU 13  During 2023, the Commission raised EUR 116 billion from capital markets through the issuance of EU-Bonds, of which almost EUR 12.5 billion in the form of green bonds. Building on the NextGenerationEU diversified funding strategy, the European Commission included all borrowing operations in 2023 under a unified funding approach whereby the Commission only issues EU-Bonds rather than separately denominated bonds for individual programmes. The largest share of these funds was used to make disbursements to Member States under the Recovery and Resilience Facility. In December, the European Commission published the first NextGenerationEU green bond allocation and impact report, which confirms the EU’s commitment to sustainable finance. Commission issues single branded EU bonds and allocates the proceeds to a central funding pool from which the EU’s different policy programmes are funded. This allows the EU NGEU to offer more flexible disbursements and to loans keep borrowing EU budget EU-Bills (incl REPowerEU) costsall as low as possible (for more information, see Section II). EU BUDGET guarantees NGEU-funded EU issuances EU central budget EU-Bonds PROCEEDS funding DISBURSEMENTS policies NGEU pool grants Ukraine MFA+ Other policies NB: MFA+, Macro-Financial Assistance Plus; NGEU, NextGenerationEU. All these results were achieved while ensuring the EU budget is well protected against fraud and irregularities, in the interest of taxpayers (for more information see Section III). Highlights of the 2023 EU budget and NextGenerationEU 14 Section II EU annual accounts Providing an accurate picture of EU finances 15 Section title Highlights of the 2023 EU accounts The EU’s consolidated annual accounts provide a complete overview of EU finances and the implementation of the EU budget. They are prepared on the basis of accrual- based accounting rules adopted by the Accounting Officer of the Commission, which are based on International Public Sector Accounting Standards (IPSAS). They also show how the EU budget, complemented by NextGenerationEU, was implemented during the year. Up to year-end 2023, the Commission had disbursed a total of EUR 263.1 billion of financial support (2022: EUR 162.0 billion) under NextGenerationEU. The majority of this amount, EUR 220.8 billion, was disbursed under the RRF, with EUR 141.6 billion disbursed as non-repayable support and EUR 79.2 billion disbursed as financial loan support. A further EUR 42.3 billion (net of recoveries of EUR 1 billion) was disbursed as MFF payments under existing programmes. Total 2023 commitment appropriations implementation per EU policy objectives amounted to EUR 332.3 billion, as shown in the chart. EUR 9.3 bn 1. Single Market, Innovation and Digital 2a. Economic, social and territorial cohesion EUR 2b. Resilience and values (excluding RRF) 120.9 bn EUR 66.6 bn 2b. Recovery and Resilience Facility (RRF) Total 3. Natural Resources and Environment EUR 332.3 billion 4. Migration and Border Management EUR 5. Security and Defence 28.0 bn 6. Neighbourhood and the World EUR EUR 2.5 bn EUR 63.6 bn 7. European Public Administration 19.6 bn EUR 3.7 bn EUR O. Outside MFF 12.3 bn EUR EUR 2.1 bn 3.8 bn S. Solidarity mechanisms within and outside the Union (Special instruments) Chart: Budget implementation of commitments made in 2023 Source: European Commission. EU annual accounts – providing an accurate picture of EU finances 16 Implementation of appropriations in 2023 The 2023 implementation for all types of appropriations (budget, carry-overs from previous year and assigned revenue) was 97% for commitments and 90% for payments. Implementation rates including the appropriations carried over to 2023 (in accordance with the Financial Regulation (2) and/or legal bases) reached 99% for commitment appropriations and 100% for payment appropriations of the voted budget for 2023. The NGEU appropriations were inscribed in full in 2021, i.e. EUR 421.1 billion in commitment appropriations. In 2023, the last year for which the related legal commitments could be entered into, the available commitments under NGEU amounted to EUR 115.9 billion. EUR 115.6 billion or 99.8% was committed. Only EUR 0.4 million of the commitments had to be cancelled. The remaining EUR 261.2 million was carried over to 2024. These appropriations are partly linked to the suspended Just Transition Fund allocation for Hungary (EUR 60.5 million) and partly for the technical and administrative assistance expenditure. In 2023, the NGEU payment appropriations amounted to EUR 69.2 billion and implementation reached 95.5%. The remaining amount of EUR 3.1 billion of payment appropriations was carried over to 2024. Outstanding commitments (commonly referred to as reste à liquider (RAL)), which correspond to amounts committed but not yet paid for, stood at EUR 543.0 billion at the end of 2023. The outstanding commitments increased as compared to 2022 (by EUR 90.2 billion). The main driver of the 2023 increase of the RAL was the NGEU (non-repayable part) implementation, contributing EUR 238.6 billion (44%) to the total RAL at the end of 2023. As the NGEU appropriations are to be committed until 31 December 2023 and paid by 31 December 2026, in accordance with Articles 3(4) and 3(9) of the EURI Regulation, the trend of nominally growing RAL linked to NGEU will reverse from 2024 onwards. (2) Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the Council of 18 July 2018 on the financial rules applicable to the general budget of the Union, amending Regulations (EU) No 1296/2013, (EU) No 1301/2013, (EU) No 1303/2013, (EU) No 1304/2013, (EU) No 1309/2013, (EU) No 1316/2013, (EU) No 223/2014, (EU) No 283/2014, and Decision No 541/2014/EU and repealing Regulation (EU, Euratom) No 966/2012, OJ L 193, 30.7.2018, p. 1. EU annual accounts – providing an accurate picture of EU finances 17 EU BUDGET RESULTS FOR 2023 AND 2022 2023 2022 Revenue for the financial year 248 361 245 265 Payments against current year appropriations (236 739) (239 157) Payment appropriations carried over to year N+1 (3 014) (2 452) Cancellation of unused appropriations carried over from year N-1 4 80 Evolution of assigned revenue (8 055) (1 121) Exchange differences for the year 78 (97) Budget result 635 2 519 All amounts in EUR million. Source: European Commission. All amounts in EUR billion EU annual accounts – providing an accurate picture of EU finances 18 Consolidated financial statements The consolidated financial statements of the EU comprise more than 50 entities (including the European Parliament, the Council of the European Union, the Commission and EU agencies). The European Commission is the most significant entity, accounting for almost all of the total assets in the consolidated financial statements. 2023 AND 2022 BALANCE SHEET OF THE EU 2023 2022 ASSETS Financial assets 285.4 235.4 Pre-financing 91.7 100.5 Receivables 35.2 48.2 Cash and cash equivalents 39.6 46.5 Property, plant and equipment and other assets 15.8 15.2 Total 467.7 445.9 LIABILITIES Post-employment benefits 90.8 80.6 Financial liabilities 458.4 352.3 Payables 50.5 55.3 Accruals 76.8 86.2 Other liabilities 3.3 2.8 Total 679.8 577.2 NET ASSETS Reserves 1.1 1.3 Amounts to be called from Member States (213.2) (132.6) Total (212.2) (131.3) All amounts in EUR billion. Source: European Commission. EU annual accounts – providing an accurate picture of EU finances 19 The excess of liabilities over assets at 31 December 2023 amounted to EUR 212.2 billion (2022: EUR 131.3 billion). This excess of liabilities over assets does not mean that the EU institutions and bodies are in financial difficulties – rather, it means that certain liabilities will be funded by future annual budgets. Many expenses are recognised under accrual accounting rules in the current year although they may be actually paid in subsequent years and funded using future budgets; the related revenues will only be accounted for in future periods. Apart from the borrowings for NGEU, which are to be repaid up to 2053, and the employee benefits liability, which is to be paid over several decades, the most significant amounts to be highlighted are the activities relating to the EAGF, the bulk of which is usually paid in the first quarter of the following year. ASSETS EU assets assets include buildings, receivables and cash, but also EU-specific items such as the satellites of the Galileo and Copernicus programmes, loans given to Member States and non-EU countries as financial assistance, and advances (pre- financing) given to recipients of EU funds – primarily Member States. 15.8 39.6 3% 8% 35.2 8% Total EUR 467.7 91.7 billion 20% 285.4 61% Financial assets Pre-financing Receivables and recoverables Cash and cash equivalents Other Chart: EU assets in 2023 (major categories) (billion EUR). Source: European Commission. EU annual accounts – providing an accurate picture of EU finances 20 Financial assets Loans. The EU provides financial support to preserve financial stability in Europe and to grant financial assistance to Member States (and some non-EU countries, e.g. Ukraine) in financial difficulties. In this context, the EU raises funds on the capital markets or with financial institutions. In 2023, further loans were disbursed under the programme providing macro- financial assistance to enlargement and neighbourhood partners. This included EUR 18 billion of new loans disbursed to Ukraine under the Macro Financial Assistance + (MFA+) programme, which helped to cover a significant part of Ukraine’s short-term funding needs for 2023. Furthermore, in 2023 the EU granted further loans of EUR 34.1 billion under the RRF and REPowerEU programmes. The following graph shows the nominal amounts of the loans outstanding at 31 December 2023 by programme and recipient state. Total EUR 254.1 billion BOP (Latvia) - 0.2 EURATOM (Ukraine) - 0.3 SURE - 98.4 EFSM - 42.8 MFA - 33.2 NGEU loans - 79.2 Italy - 27.4 Ireland - 20.5 Ukraine - 29.6 Italy - 60.9 Spain - 21.3 Portugal - 22.3 Other - 3.6 Greece - 7.3 Other Member States - 49.6 Poland - 4.5 Other - 6.5 Chart: Nominal amount of loans granted for financial assistance SURE, EFSM, MFA, BOP, EURATOM, NGEU loans. NB: BOP, balance of payments; EFSM, European Financial Stabilisation Mechanism; Euratom, European Atomic Energy Community; NGEU, NextGenerationEU. Source: European Commission. The EU’s borrowing and lending activities for financial assistance programmes and All amounts in EUR billionare NextGenerationEU non-budget operations. Borrowings of the EU constitute direct and unconditional obligations of the EU and are thus guaranteed by the EU budget. The Commission has put procedures in place to ensure the repayment of these borrowings in case of a loan default by the recipient. In addition to the guarantee by the EU budget, for the SURE instrument, Member States provided EUR 25 billion in guarantees. Furthermore, EUR 6 billion of loans provided to Ukraine in 2022 under the MFA programme are covered by the Member States’ guarantees, amounting to 61% of the exposure. EU annual accounts – providing an accurate picture of EU finances 21 Financial assets at fair value through surplus or deficit. The EU holds financial assets at fair value through surplus or deficit in the form of debt securities, equity instruments and other types of investment. These investments are made as part of the implementation of the budget to maximise the impact of the funds available for programmes and policy areas. The basic concept behind this approach is to encourage the contribution of additional private and public funds to the programmes in question, maximising the impact of the funds available (the leverage effect). Pre-financing Pre-financing is an essential instrument for the implementation of the EU budget. It constitutes a cash advance given to recipients to implement a specific programme. The recipient is required to report the eligible expenditure incurred to the EU, and any ineligible or unused amounts must be returned to the EU. For further information on this topic please refer to the Consolidated annual accounts of the European Union. Receivables Receivables are amounts owed to the EU arising from competition fines issued, traditional own resources (e.g. customs duties) and other amounts to be collected from Member States (e.g. amounts relating to the European Agricultural Guarantee Fund and the European Agricultural Fund for Rural Development, along with remuneration to be received from financial institutions for the financial guarantees issued by the EU). Following the United Kingdom’s withdrawal from the European Union in 2020, this position also includes the net amount receivable from the United Kingdom based on the obligations of the withdrawal agreement signed between the EU and the United Kingdom. Property, plant and equipment — space assets This category covers operational fixed assets related to the two EU space programmes: the global navigation satellite systems (i.e. Galileo and the European Geostationary Navigation Overlay Service) and the Copernicus European Earth observation programme. Space assets at 31 December 2023 amounted to EUR 3.1 billion, with a further EUR 5.8 billion recognised as assets under construction. For Galileo, the operational constellation currently includes 28 satellites. When completed, the Galileo constellation will comprise 30 satellites (including six spare satellites). Regarding Copernicus, 8 satellites are operational with 18 satellites and instruments under construction. EU annual accounts – providing an accurate picture of EU finances 22 LIABILITIES EU liabilities are amounts owed to recipients of EU funds, but also borrowings, liabilities stemming from financial guarantee contracts, pensions and other employee benefits. 11.2 50.5 2% 8% 76.8 11% Total 90.8 EUR 679.8 13% billion 450.6 66% Borrowings Pension & other employee benefits liabilities Accrued charges & deferred income Payables Other liabilities Chart: EU liabilities in 2023 (billion EUR). Source: European Commission. Post-employment benefits The EU grants a set of post-employment benefits to employees, which include retirement, invalidity and survival pensions, along with medical coverage. The benefits are provided under a defined benefit pension plan and post-employment sickness scheme. The increase in the total employee benefits liability is primarily driven by the actuarial losses from changes in the underlying financial assumptions resulting from a decrease in the real discount rates since the last year-end. Financial liabilities (primarily borrowings) The EU borrows money on the capital markets to finance loans to the countries under financial assistance programmes, and to finance RRF loans, RRF non-repayable support and other MFF programmes. EU annual accounts – providing an accurate picture of EU finances 23 In the past, funds borrowed from the capital markets were lent under the same conditions (back-to-back operations) to the Member States and partner countries concerned. Since 2021, the borrowings issued to finance the RRF programme under the NextGenerationEU instrument are not equal to the loans granted, as they also serve to finance the non-repayable support in the form of grants. Moreover, the Commission applies a pooled funding approach where the borrowings are not directly funding specific disbursements. Instead, the debt is issued according to semi-annual funding plans, with long-term bonds and short-term bills. Since 2023 this approach has also been used for other programmes. Because of the unified funding approach, borrowings given out as loans are not back-to-back operations any more. Thus, at the end of 2023, the loans recognised on the balance sheet did not match the borrowings. Payables and accruals Payables and accruals are amounts owed to third parties. Payables include invoices and cost claims received but not paid at year-end (e.g. Member States requesting the reimbursement of expenditure made in the current or previous years). Accrued charges include the estimated amounts of invoices and cost claims not yet received, which will have to be reimbursed the following year. The largest amount at year- end relates to the European Agricultural Guarantee Fund, for which the amounts are primarily paid from the budget in the first quarter of the following year. Contingent liabilities A contingent liability is a possible financial obligation of the EU budget that will be confirmed depending on an outcome of a future event that is outside the control of the EU, or a present obligation for which financial settlement by the EU budget is not probable. The EU mainly discloses the outstanding nominal amounts of the financial guarantees given (on loans and equity investments) and contingent liabilities relating to legal risks. All contingent liabilities – except those relating to fines, guarantees and financial instruments up to the level to which they are covered by funds – would be financed, should they fall due, by the EU budget (and thus the Member States) in the years to come. EU annual accounts – providing an accurate picture of EU finances 24  Guarantees given for EU financial instruments EUR 4.0 billion 4% Budgetary guarantees (ceiling) Total EUR 108.3 billion EUR 114.7 94% billion Legal cases EUR 2.4 billion 2% Chart: Contingent liabilities in 2023. Source: European Commission. Guarantees given under the EU budgetary guarantee programmes. Under this type of budget implementation, the EU provides guarantees to financial institutions (implementing partners) for their financing (lending) and investment (equity) operations to pursue its policy objectives. The EU provides guarantees to the European Investment Bank (EIB) Group for its loans granted outside the EU (under the external lending mandate) and for debt and equity operations within the EU covered by the European Fund for Strategic Investments (EFSI) and InvestEU guarantees. Under the InvestEU programme the EU also provides guarantees to the European Bank for Reconstruction and Development and several national promotional banks in the EU Member States and EFTA countries, in order to mobilize private investments for the green and digital transition, innovation and social investments and skills in EU countries. Furthermore, the EU guarantees investments in partner countries in Africa and in the European neighbourhood undertaken by several implementing partners under the European Fund for Sustainable Development and External Action Guarantee established by the Neighbourhood, Development and International Cooperation Instrument – Global Europe. To mitigate the risk that guarantee calls by the EIB Group or other financial institutions could present to the EU budget, the EU holds financial assets in a common provisioning fund managed by the Commission. The EU budget also guarantees the loans for financial assistance and the RRF loans, and related borrowings – see ‘Loans’ under ‘Financial assets’ above. EU annual accounts – providing an accurate picture of EU finances 25 Long-term forecast for 2025–2029 The long-term forecast of future inflows and outflows provides a long-term view of expenditure and revenue in future EU budgets. The forecast covers the next 5 years, in accordance with the requirements of the financial regulation. The 2024 report is the fourth forecast issued for the 2021–2027 MFF and NextGenerationEU. Besides providing MFF estimates, this forecast updates the projections of payments on all programmes under NextGenerationEU. This edition of the forecast incorporates the impact of the mid-term revision of the MFF (3). For 2028-2029, the forecast only includes expenditures related to the MFF 2021-2027, as the next MFF has not yet been established. 300 261 250 219 Annual average: 189 216 200 NextGenerationEU 198 150 145 123 100 MFF 2021-2027 50 0 Completion 2025 2026 2027 2028 2029 Chart: Payment forecast for 2025-2029 by category in EUR billion. Source: European Commission. The payments over the next 5 years of the MFF are expected to reach EUR 947 billion, including EUR 799 billion under the MFF payment ceiling and EUR 148 billion for NextGenerationEU non-repayable support. The forecast is drawn up in a context of high uncertainty. The initiatives already put forward to support Member States, non-EU countries and specific sectors accelerated payments for the outstanding and new programmes. Following the historic mid-term revision, the MFF and external financing instruments are making more funding available for Ukraine and the neighbouring partner countries as well as for migration and competitiveness. (3) Council Regulation (EU, Euratom) 2024/765 of 29 February 2024 amending Regulation (EU, Euratom) 2020/2093 laying down the multiannual financial framework for the years 2021 to 2027, OJ L, 2024/765, 29.02.2024. EU annual accounts – providing an accurate picture of EU finances 26 The MFF payment ceiling remains sufficient to cover the projected payments. Payments are expected to run well below the MFF payment ceiling in 2024 and 2025, making it possible to transfer unused amounts, within certain limits, towards the end of the period, when credit needs will be higher. Overall, the net margin over 2025– 2027 is estimated at EUR 17.6 billion, including the automatic adjustment of the ceiling, following the top-ups resulting from the provisions of Article 5 of Regulation (EU, Euratom) 2024/765 (MFF Regulation of 29 February 2024). Trends in payments under the MFF payment ceiling will need to be closely monitored in the coming years, especially to measure the potential effects of new policy initiatives or the acceleration in the implementation of programmes. Member States will need to implement NextGenerationEU funds prior to the deadline for disbursements scheduled for 2026 and at the same time accelerate the implementation of cohesion funds. While the RAL nominally increases at the end of the MFF compared to last year, when measured as a share of the EU gross national income the RAL is reduced, which shows that the nominal growth of the EU economy outweighs the accumulation of outstanding commitments from the EU budget. NextGenerationEU produces a temporary effect on the level of the EU’s outstanding commitments. As previously reported, the level of outstanding commitments peaked at the end of 2023, mainly driven by the impact of NextGenerationEU. The RAL reflects the state of implementation of the budget to date, including delays in cohesion policy and agriculture, which are forecast to persist until the end of the programming period. 2.5 % NextGenerationEU 2.0 % 1.5 % 1.0 % MFF 2021-2027 0.5 % 0% Chart:2025 Changes in the level of outstanding commitments (RAL), 2025-2027, measured in % of the EU’s GNI. 2026 2027 Source: European Commission. EU annual accounts – providing an accurate picture of EU finances 27 The own resources necessary to finance the budget alongside other revenue will follow the MFF expenditure cycle. However, the size of the available margin under the own- resources ceiling will remain relatively stable as the increasing revenue needs match the projected nominal growth of the EU economy. For 2028 and 2029, the forecast is limited to expenditure resulting from the current MFF and does not include expenditure for the next MFF. 450 Own resources ceiling 400 2.00 % GNI 350 300 Own resources ceiling 1.40 % GNI 250 200 150 100 National contributions 0 Traditional own resources (net) 0 Other revenue 2025 2026 2027 2028 2029 Chart: Revenue forecast for financing the 2025–2029 Multiannual Financial Framework (billion EUR). Source: European Commission. EU annual accounts – providing an accurate picture of EU finances 28 Section III EU budget financial management and internal control 29 Section title EU budget financial management and internal control The European Commission attaches great importance to the sound financial management of the EU budget and NextGenerationEU, a temporary instrument to power the recovery from the COVID-19 pandemic. In order to make the best possible use of taxpayers’ money, it is essential to ensure that funding reaches the intended beneficiaries in compliance with the applicable rules. To achieve this objective, the Commission relies on a number of tools, which have proved to be effective over the years: strong governance arrangements, leading to a solid chain of assurance building and accountability at department and corporate levels; a robust corporate internal control framework and tailored control strategies based on common features designed to reduce the risks to the legality and regularity of transactions; control results, including financial corrections, confirming that the EU budget is well managed; a multilayered anti-fraud strategy and the implementation of a zero- tolerance policy on fraud; the assurance obtained through the work of the Internal Audit Service (IAS); the European Court of Auditors as external auditor, and the discharge procedure with the European Parliament and the Council. EU budget financial management and internal control 30 Effective tools are in place to ensure accountability, transparency and sound financial management The Commission’s governance system and chain of accountability are tailored to its unique structure and role. The College of Commissioners is politically responsible for the management of the EU budget. It delegates the day-to-day operational management to the 51 authorising officers by delegation, who manage and steer their departments and are accountable for the resources assigned to them. Their annual activity reports clearly demonstrate how they obtained assurance as to the use of these resources, and draw on the conclusions of the Internal Auditor. They may qualify their assurance with reservations in cases of serious weaknesses. This robust governance setup helps the College of Commissioners to deliver on the Commission’s objectives, to use resources efficiently and effectively, and to ensure that the EU budget is implemented in accordance with the principles of sound financial management. The main building blocks of this solid chain of assurance and accountability are presented in the figure below. EU budget financial management and internal control 31 The Commission’s assurance building and accountability for the EU budget: clear roles and responsibilities Discharge of year n Assurance packages Assurance from Directors Directors-General Member Risk management and Authorising officers College of Commissioners European internal control by delegation Annual Integrated financial Parliament States and Authorising officer activity and accountability and Council entrusted entities Management reports Units/directorates Political responsibility reporting (*) Shared and indirect responsibility and Discharge management Management control accountability Corporate Management Board Oversight Consolidated Annual report annual accounts of Statement of assurance the European Union Special reports relating to budget European European European Commission Commission Commission European European central services Internal Audit Audit Progress Commission Court of Service Committee Accounting Auditors Guidance and Assurance and Officer support Assurance consultancy Management and internal control Internal audit Accountant External audit Discharge Timeline Year n Year n + 1 Year n + 2 (*)Integrated (*) Integrated financial financial andand accountability accountability reporting: reporting: — Consolidated annual accounts of the European Union — Consolidated annual accounts of the European Union — Annual management and performance report — Annual management and performance report — Long-term forecast of future inflows and outflows — Long-term forecast of future inflows and outflows — Annual internal audit report — Annual internal audit report — Report on the follow-up to the discharge — Report on the follow-up to the discharge Source: European Commission. EU budget financial management and internal control 32 33 Robust corporate internal control framework The Commission’s internal control framework is an essential safeguard for its operations. In 2023, the Commission further fine-tuned the internal control systems of its various departments. In close collaboration with the Member States, it took various types of action to further improve the effectiveness of the management and control systems and boost the prevention, detection and correction of errors in the implementation of all EU programmes, including the Recovery and Resilience Facility. The Commission also enhanced the efficiency and effectiveness of the borrowing and lending operations underpinning the financing of policy programmes, like NextGenerationEU, support for Ukraine through the macro financial assistance+ programme and ongoing support to other neighbouring countries. In 2023 the Commission also worked on a new strategy for managing debtors (4), adopted in February 2024. A political agreement was reached on 7 December 2023 on a targeted revision of the financial regulation proposed in May 2022. The final text is expected to enter into force in the second half of 2024. It will bring improvements in crisis management and in the implementation of EU funds and will enhance the protection of the EU’s financial interests, among others through extension of the mandatory use of a modernised data mining and risk-scoring tool for all management modes as from 2028. Zero tolerance for fraud ERRORS VERSUS FRAUD The procedures in place ensure that most errors are detected and addressed. Errors do not mean that EU money is lost, wasted or affected by fraud. Errors mainly stem from misinterpretations of public procurement rules or from administrative mistakes in applications submitted by beneficiaries, for example when documents are missing. In fact, fraud affects approximately 0.2% of the total EU budget. (4) Communication to the Commission – An enhanced corporate strategy for the management of the Commission’s debtors, COM(2024) 588 final of 6 February 2024. EU budget financial management and internal control 34 The Commission has zero tolerance for fraud and relentlessly pursues its efforts to fight corruption. This starts with robust controls on its daily financial transactions and continues, where necessary, through investigations carried out by the European Anti-Fraud Office. The European Public Prosecutor’s Office also helps reinforce the Commission’s action in this area. In 2023, the Commission adopted a Communication on the revision of the anti- fraud strategy action plan (5), accompanied by a new action plan which envisages strengthening of the EU anti-fraud architecture, in particular by increasing the use of IT tools by the Commission and Member States for the prevention, detection and investigation of fraud, and strengthening of the Commission’s anti-fraud and ethics culture. The new action plan is more targeted and strategic than the previous one, reflecting some of the overall objectives of the Commission. The revision was a joint effort of Commission services and executive agencies and was coordinated by the European Anti-Fraud Office. The Commission also took major steps in the fight against corruption (6) with an anti- corruption package which includes a Commission proposal for a directive to combat corruption by means of criminal law, and a joint Communication (7) proposing a regime of sanctions against serious acts of corruption committed outside the EU. The Commission’s control results confirm that the EU budget is well managed and protected Within its internal control framework, the Commission relies on multiannual and risk- differentiated control strategies to prevent, detect and correct errors and weaknesses in the control systems. In shared management, the Commission ensures that the Member States put in place and maintain sufficiently robust national control systems. Altogether, the Commission and Member States perform hundreds of thousands of checks every year to prevent, detect and correct errors and weaknesses in the control systems. (5) Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee, the Committee of the Regions and the Court of Auditors – Commission anti-fraud strategy action plan – 2023 revision COM(2023)405 final of 11 July 2023. (6) Proposal for a Directive of the European Parliament and of the Council on combating corruption, replacing Council Framework Decision 2003/568/JHA and the Convention on the fight against corruption involving officials of the European Communities or officials of Member States of the European Union and amending Directive (EU) 2017/1371 of the European Parliament and of the Council, COM/2023/234 final (7) Joint communication by the Commission and the High Representative of the Union for foreign affairs and security policy to the European Parliament, the Council, and the European Economic and Social Committee – JOIN(2023)12. EU budget financial management and internal control 35 As a result of these controls and audits, in 2023 preventive and corrective measures were implemented for an amount of EUR 3 836.7 million: EUR 2 399.1 million for preventive measures and EUR 1 437.6 million for corrective measures, respectively. The Commission estimates that the risk of error for 2023, at the time of payment and after its preventive controls, remains at the same level as in 2022, at 1.9%. This stability, in spite of the numerous challenges encountered during the last several years, is consistent with the fact that most of the expenditure in 2023 relates to the 2014– 2020 programming period and that rules, control systems and implementing bodies have remained stable. The Commission, with Member States responsible for shared management, deploys substantial efforts to carry out controls after the payments and to make corrections until the closure of the programmes. These efforts are reflected in the estimated risk of error at the closure of the programmes, UPDATED once all controls and 05.06 corrections have taken place. For 2023, the risk at closure is estimated at 0.9%. GRAPH – ALL HEADINGS Both the risk at payment and the risk at closure are below the threshold of 2%, which is the same materiality threshold used by the European Court of Auditors. As a result, the Commission considers that the budget as a whole is effectively protected. This is confirmed by the Internal Auditor’s opinion (8). Risk at payment Risk at closure 3.4% 3.2% 3.0% 2.8% 2.6% 2.4% 2.2% 2.1% 1.9% 1.9% 1.9% 1.9% 2.0% 1.8% 1.7% 1.7% 1.6% 1.4% 1.2% 1.0% 0.8% 0.9% 0.9% 0.9% 0.8% 0.8% 0.6% 0.7% 0.6% 0.4% 0.2% 2017 2018 2019 2020 2021 2022 2023 Chart: Risks at payment and at closure, for the entire Commission, 2017–2023 Source: European Commission. (8) Without further qualifying the opinion, the Internal Auditor draws the attention of the Commission to the need to build on the lessons from managing its financial resources in a challenging context. EU budget financial management and internal control 36 The Commission has robust evidence that demonstrates a differentiated level of risk for the EU expenditure. Based on the risk at payment, the Commission can precisely divide the annual expenditure into three categories of risk: lower (risk at payment below 2.0 %), medium (risk at payment between 2.0% and 2.5%) and higher (risk at payment above 2.5%). For natural resources and environment, this analysis is applied at the level of individual paying agencies, while for cohesion, resilience and values, and migration and border management, the analysis is made at the level of the programmes in the Member States, thus enabling the Commission to report precisely on the number of paying agencies / programmes with a higher risk of error (9). For instance, in 2023, for Cohesion Funds this was the case for 106 programmes out of 493 for both 2014-2020 and 2021-2027 programming periods. For agriculture, it was the case for 28 paying agencies out of 75. In migrationUPDATED and border13.05 management, the higher risk segment of expenditure concerned 10 out of 70 programmes. GRAPH - LMH risk Such analysis enables the Commission to focus its efforts on mitigating the risks related to more complex programmes and, as a result, to reduce the level of risk at payment. Migration and border management 0.4% Single market, innovation and digital Natural resources and environment 3.2% Natural resources and environment 7.5% 23.5% Cohesion, resilience and values 13.2% Higher risk 24.2% Migration and border management 0.0% Single market, innovation and digital 0.5% 3.1% Medium risk Lower risk Natural resources and environment 9.2% 66.6% 5.7% Cohesion, resilience and values 20.6% Security and defence 0.1% 5.2% Cohesion, resilience and values Migration and border management 1.4% 7.5% European public administration 8.3% Single market, innovation and digital Neighbourhood and the world Chart: The European Commission’s relevant expenditure, EUR 170.7 billion for 2023, split into higher, medium and lower risk segment Source: European Commission annual activity reports. (9) These cases are detailed in the annual activity reports of the relevant directorates-general. They are part of the reservations that qualify the authorising officer by delegation’s declaration of assurance. EU budget financial management and internal control 37 In addition to applying financial corrections and recoveries, the Commission is taking action to address weaknesses leading to medium and higher risks. These include communication targeted at the most error-prone beneficiaries, remedial action plans, more extensive use of simplified forms of grants, better controls, guidance where necessary and capacity-building of national authorities. The Recovery and Resilience Facility - an innovative and successful crisis-response tool For the Recovery and Resilience Facility the Commission has put a dedicated control environment in place and continues to develop it. This setup ensures on the one hand that the Member States put in place effective control systems to protect the Union’s financial interests as per the requirements of the RRF Regulation, and on the other that the payments to the Member States, which are disbursed against the achievement of predefined milestones and targets, are legal and regular. This control environment was further improved and fine-tuned based on the experience gained over the years. On legality and regularity, the Commission’s control results confirm the satisfactory fulfilment of all the milestones and targets for the payments made in 2023, based on the results of the controls carried out. In addition, the Commission concluded that 23 payments made in 2023 were considered to be at a low level of risk of error and 1 to be at a medium level of risk. Regarding compliance with all applicable rules, namely public procurement and state aid and compliance with the obligation to make corrections in cases of fraud, corruption and conflict of interest or a serious breach of obligations resulting from financing and loan agreements, the Commission concluded that the level of risk is mostly low or medium except in 1 case for which the level of risk with respect to compliance with the obligation to make corrections is assessed as high. Input from the internal auditor The EU is a very transparent institution, providing information about its accounts and spending, and on the operational and budgetary implementation of the funds, through a wide range of reports and publicly accessible databases. Every euro the EU spends is recorded in the books and accounted for. EU budget financial management and internal control 38 Controls on how the money is spent are carried out by the Commission services and also by the Member States in cases of shared management, as well as through internal audits by the Internal Audit Service. The Commission’s Audit Progress Committee oversees the independence and quality of internal audit work and monitors the proper implementation of the improvements recommended by the IAS. The key messages from the Internal Auditor concern: Financial management. The Internal Auditor considers that in 2023 the Commission put in place governance, risk management and internal control procedures which, taken as a whole, are adequate to give reasonable assurance regarding the achievement of its financial objectives, except for those areas of financial management over which authorising officers by delegation have expressed reservations in their declaration of assurance. Performance management. The IAS also carried out performance audits in 2023 as part of its strategic audit plan. The engagements covered areas such as performance management, EU policy implementation, internal control systems in relation to legality and regularity, preparedness for and early implementation of the EU budget, cooperation with third parties that implement policies and programmes, and information security and technology. For all (partially) accepted recommendations the auditees drafted action plans, which were submitted to, and assessed as satisfactory by, the IAS. Follow-up of previous internal audit work. The IAS confirmed that 97% of the recommendations issued during 2019–2023 were adequately and effectively implemented by the auditees. This result indicates that the Commission services are diligent in implementing the recommendations and mitigating the risks identified by the IAS. Political control and discharge procedure The European Parliament, in its 2022 discharge report, highlighted a certain number of political priorities as regards the management of the EU budget, including: protection of the EU budget against breach of the rule of law in the Member States and against fraud; simplification of rules and procedures to reduce both the burden on beneficiaries and the risk of spending errors; performance of the budget; and absorption of the funds. The Council of the European Union, in its recommendation to the Parliament to grant discharge to the Commission, also put forward a certain number of requests. EU budget financial management and internal control 39 The Commission shares the main objectives expressed by the discharge authority. In its report on the follow-up to the 2022 discharge, the Commission reports on how it is addressing these political priorities. The Commission always strives to strike the right balance between (i) a low level of errors and the protection of the EU financial interest; (ii) reasonable control burden and costs for public authorities and beneficiaries; and (iii) swift payments. Lessons learnt from past discharge procedures can inform reflections on the next long-term EU budget. One of the key takeaways from previous discharges is that the way funds are disbursed has a direct impact on the risk of error. Complex rules and too-rigid delivery models are responsible both for a large share of spending errors and for putting pressure on the administrative capacity of those implementing the budget, and those benefiting from it. The Commission will draw on these observations to prepare future spending programmes. EU budget financial management and internal control 40 The EU budget in a nutshell 41 Section title Why an EU budget? The EU budget is key to implementing EU policies and priorities. It leverages national budgets and other policy instruments at the EU level to address the many challenges and opportunities faced by the EU. The EU intervenes only when it is more effective to spend money at the EU level than at the local, regional or national level. The EU budget complements national budgets and implements commonly agreed priorities. It focuses on areas in which pooling resources can deliver results that could not be achieved as effectively or efficiently by Member States acting alone – thus it generates or maximises European added value. The EU budget also plays a major role in responding to crises. With increased flexibility through instruments such as NextGenerationEU, it equips the EU with the tools to collectively and swiftly address unforeseen developments such as the COVID-19 pandemic, disturbances in the energy market or new geopolitical challenges. The EU budget is called upon to finance more actions and step up in a growing number of areas across the whole range of EU-wide policies – and this trend may intensify in the coming years. In this way, the EU budget also provides the EU with a higher degree of strategic autonomy. What is the EU budget? Like every budget, the EU’s provides for financial planning on an annual basis (by calendar year), but within an EU-specific long-term framework (the multiannual financial framework) and is composed of two sides: revenue and expenditure. The legal basis for the EU budget is enshrined in the Treaty on the Functioning of the European Union, which stipulates that the EU ‘shall provide itself with the means necessary to attain its objectives and carry through its policies’ (Article 311). The EU budget is executed hand in hand with the Member States and with other partners and organisations. Its programmes are multiannual by nature, providing a stable and predictable framework which is ideally suited to supporting strategic investments over the medium to longer term. It entails a variety of instruments that are tailored to the aim of the particular policy and final beneficiaries’ needs. Ensuring that the budget is properly and effectively spent requires strong accountability and control mechanisms. The EU budget in a nutshell 42 How does it work? LONG-TERM BUDGET The multiannual financial framework (MFF) provides a long-term spending plan of at least 5 years; all but the first have been for 7 years. This time frame allows for a balance between predictability and the recurrent need to adjust spending to the changing priorities set at the highest EU level. The MFF sets the maximum annual amounts (ceilings) that the EU may commit and spend on each policy area, organised into a few broad categories called headings (currently seven). These headings bring together EU financial programmes of varying size and scope. The categories of expenditure, limited in number, correspond to the EU’s major sectors of activity. The current (2021–2027) MFF was agreed in July 2020 at the European Council Summit and adopted in late 2020. Its third year was 2023. The current MFF brings several changes from the previous one in terms of the structure and rules, but the main novelty is in combining the regular general budget with the extraordinary, temporary and one-off NextGenerationEU instrument. These two pillars set the highest spending plan in EU history. Single Market, Innovation and Digital 149.9 (+ 11.5 from NGEU) Cohesion, Resilience and Values 429.8 (+ 776.5 from NGEU) Natural Resources and Environment 400.3 (+ 18.9 from NGEU) Migration and Border Management Total 28.3 €2 027.9 Security and Defence 16.4 billion Neighbourhood and the World 113.7 European Public Administration 82.5 Total: €2 027.9 billion NextGenerationEU 806.9 billion Long-term budget 1 221.0 billion Chart: The EU long-term budget 2021-2027 ceilings (as of the technical adjustment for 2025) and NextGenerationEU. Several programmes under these headings receive additional allocations under Article 5 of Regulation (EU, Euratom) 2024/765 (the ‘MFF regulation’ (MFFR)) (Horizon Europe, InvestEU, EU4Health, Erasmus+, Creative Europe, Justice, Citizens, Equality, Rights and Values programmes and the Integrated Border Management Fund), from the reuse of decommitments under Article 15 of Regulation (EU, Euratom) 2018/1046 (the ‘financial regulation’ (FR)) (Horizon Europe) and from reflows from the European Development Fund (the Neighbourhood, Development and International Cooperation Instrument- Global Europe). The precise additional allocations will be established annually. Source: European Commission. The EU budget in a nutshell 43 The MFF was revised on 29 February 2024. All of the priorities of the Commission’s proposal were confirmed. This reinforcement will allow the EU to continue delivering on our common priorities, benefiting the people in our Union and beyond NextGenerationEU The NextGenerationEU recovery plan for Europe is the 807 billion programme to support the economic recovery from the impact of the COVID-19 pandemic and build a greener, more digital and more resilient future(10). The Recovery and Resilience Facility makes up 90% of the budget of NextGenerationEU. The facility is a performance- based financing instrument that gives Member States the flexibility to design and implement reforms and investments that best serve their national needs, as also identified at the EU level, in full respect of the objectives of the green and digital transformations. In 2023, EUR 238 billion of NextGenerationEU funds was allocated in commitment appropriations, mainly through the Recovery and Resilience Facility. The priority of NextGenerationEU is to deliver prompt and targeted financial assistance to Member States, and for that reason the spending period is shorter than for the MFF. It is financed using the borrowing capacity of the EU, and repayment will take place until 2058 to avoid placing immediate pressure on national finances. Up to 30% of all NextGenerationEU funds will be raised in the form of green bonds, turning the EU into the largest green bonds issuer in the world. Full implementation of all measurable climate relevant actions can permanently reduce greenhouse gas emissions by 44 million tonnes per annum, which is equivalent to 1.2% of aggregate EU greenhouse gas emissions in 2022. (10) Council Decision (EU, Euratom) 2020/2053 of 14 December 2020 on the system of own resources of the European Union and repealing Decision 2014/335/EU, Euratom, OJ L 424, 15.12.2020, ELI: http://data. europa.eu/eli/dec/2020/2053/oj. EUR 807 billion in current prices, EUR 750 billion in 2018 prices. The EU budget in a nutshell 44 ANNUAL BUDGET Each annual budget is adopted within the limits of the long-term budget (MFF). It determines EU annual expenditure and revenue for all EU policy areas in a given year. In 2023, the total amount allocated to the EU budget was EUR 181 787 million in commitment appropriations (not including NextGenerationEU). Total EUR 181 787 Cohesion, resilience Migration and border Security and and values management defence EUR 70 651 EUR 3 727 EUR 2 117 12% 39% 31% 2%1% 10% 4% 1% Single market, innovation Natural resources Neighbourhood and and digital and environment the world EUR 21 446 EUR 57 218 EUR 17 791 European Commission administration EUR 6 656 Special instruments EUR 2 180 Chart: Multiannual financial framework: 2023 EU budget commitment appropriations by budget heading (million EUR). Source: European Commission. How big is the EU budget? Over the years, the EU budget has remained a small part of total public expenditure in the EU, amounting to roughly 1% of the EU’s gross national income (GNI) on average. For 2021–2027, the long-term budget is supplemented by the short-term NextGenerationEU instrument. Taken together, the long-term budget and NextGenerationEU constitute the largest expenditure package financed through the EU budget. Intended to foster investments and reforms, support recovery and ensure a lasting structural transformation of our economies with green and digital objectives at its heart, it totals a nominal amount of EUR 2 trillion. The EU budget in a nutshell 45 The size of the EU budget as a percentage of GNI 0.7% 1.25% 1.09% 1.12% 1.02% 1.02% Average Average Average Average Average 1993-1999 2000-2006 2007-2013 2014-2020 2021-2027 MFF NGEU 2014–2020: based on the approved ceilings of the multiannual financial framework for the EU-28. 2021– 2027: based on the approved ceilings of the multiannual financial framework (including the integration of the European Development Fund) as of the te