The Commission's department for regional policy estimates that an amount between €916 million and €2 billion in regional spending in 2011 was at risk of irregularities. This is a sharp increase from the previous year, when the risk was put in the range of €236m-€489m. To put that in context, the European Regional Development Fund and the Cohesion Fund had a combined total expenditure of €33.4bn in 2011.
Walter Deffaa, who took over as director-general for regional policy at the beginning of this year, was earlier in his career head of the Commission's internal audit service, so he will be familiar with entering reservations on a statement of assurance. Perhaps that is just as well, for this is the Commission department with the most far-reaching and severe difficulties in giving assurance as to sound financial management. Most of those difficulties lie in the member states, where control systems are inadequate and spending is not being well managed. As an average percentage of spending, the risk of irregularities was highest in the Czech Republic (11.4%), Romania (11.2%) and Italy (8.6%). In absolute terms, the risk of irregularities is deemed highest in the Czech Republic, with an estimated range of €162.1m-€456.1m, Spain (€139.4m-€223.1m) and Poland (€114.2m-€171.9m).
In March, the Commission sent a warning letter to the Czech government announcing the interruption of all further payments from the two funds and giving the authorities until next Sunday (1 July) to improve the management and control of expenditure.
The interruption affects around €2.35bn in regional and cohesion funding for the Czech Republic, according to Czech reports. (The Commission cannot confirm this figure because it does not know which invoices the government would have submitted for reimbursement had it not been for the interruption.)
If the Commission believes that the improvements proposed by the government are insufficient, it could suspend payments for a longer period. Such a move, which requires the approval of the college of commissioners, would be a last resort, and at present there are just two suspensions in force for regional funding, one for the Saarland in Germany and one for the Italian region of Calabria.
Johannes Hahn, the European commissioner for regional policy, discussed the matter with Petr Necas, the Czech prime minister, in March. A suspension could double the country's budget deficit this year, to 6% of gross domestic product, the Czech government has warned.
In the case of Romania, the Commission is withholding until the end of June 10% or 25% of programme costs (depending on the programme). An audit will then determine whether full payments can resume.
Deffaa also entered reservations for €130,000-€150,000 of 2011 pre-accession spending.
His report will be seized upon by European Parliament committees, notably those for employment and social affairs, regional development, and budgetary control. Its subject matter is bound to cause controversy in the months to come.