Around €7m from the European Social Fund (ESF) was spent by a handful of multinationals in Poland on providing extra training for their own employees. These funds were really intended for small and medium-size businesses and not for people already in employment and certainly not for managers. The funds were supposed to be used primarily to help poorly educated and long-term unemployed people to get a foothold on the job market.

Dutch newspaper Trouw, which highlighted the improper use of European funds this weekend, named a number of household names, such as ING, Unilever, Philips and BGZ, Rabobank's Polish subsidiary, in connection with the problem.

The level of misuse is sometimes astonishing. The article includes a quote by Grzegorz Gorzelak from the Centre for European Regional and Local Studies in Warsaw, saying "everyone seems to be out to make a quick buck. We organise completely pointless training courses. Money is spent on albums, business cards, cd covers, mugs, toys, chocolates and memory sticks.”

€1.6m to build a cigarette factory

Reports on the improper use of European funds are nothing new. Two years ago the Financial Times newspaper in cooperation with the Bureau of Investigative Journalism presented the results of a detailed investigation that revealed that European programmes for the development of deprived European regions “lie idle under red tape”.

When detected, fraud and misuse were rarely punished. At the time the newspaper also cited multinationals such as IBM, Fiat and H&M. The company, British American Tobacco, raked in €1.6m of support for the construction of a cigarette factory. According to Italian police around €1.2bn in European funds ends up in the hands of the Mafia every year.

As Bart Staes, an MEP for the Greens and member of the Committee on Budgetary Control explains, “The misuse concerns not only money from the three major European Structural Funds, which is intended for regional development employment and social cohesion. Agricultural subsidies are also frequently not used for what they are intended.”

Last year the European Court of Auditors discovered large plots of “permanent grazing land” in Italy and Spain for which subsidies had been issued, but which in reality were wooded areas or the location of other “elements which were not eligible for subsidies”. The Dutch airline company KLM was even more creative. It received a subsidy worth €600,000 for its in-flight catering under the category “export of agricultural products”.

Naming and shaming

As Staes clarifies, “The problem is not always one of fraud. For example, was it really a good idea to use money from the European Regional Development Fund to rebuild the streets around the city of Antwerp?” The European Parliament's Committee on Budgetary Control has already been working for seven years to increase the transparency and control over European funds. The problem is that the European institutions themselves are incapable of monitoring the correct use of the many billions made available.

In the multi-year budget for 2007-2013 the three Structural Funds alone were allocated no less than €347bn, which represents around a third of the total EU budget. Add to this the agricultural subsidies and the amount involved is more like three quarters of that budget.

The member states are responsible for managing these funds and for using them to supplement their own investments. In that respect they have a substantial degree of autonomy. This is something the European commission is well aware of. According to the “Blunder Book”, the commission acknowledges that there are “considerable weaknesses in some areas such as rural development, cohesion and research”.

As Staes adds, “Over the years, national and regional administrations have gradually started to regard the funds as their own, rather than European money. As a consequence there is little supervision. The European Court of Auditors calculated that in 70 per cent of the misuse cases discovered during their audits, the member states should have been perfectly aware that the money was not being used in precisely the correct way.”

In 2010, the European Parliament adopted a resolution which advocated a policy of “naming & shaming”. However previous attempts to implement such a policy failed due to legal objections. Accused parties can simply take the matter to the European Court of Justice, which adopts a strict approach when it comes to protecting privacy. At the end of last year the European commissioners for social policy, regional policy and agriculture promised to join forces at the beginning of this year to ensure that the policy could be implemented.

500m Europeans under the poverty line

In the meantime the European Parliament's Committee on Budgetary Control has itself proposed that finance ministers of the member states should be held responsible.

Up to now only four member states have expressed support for the proposal. These are Sweden, Denmark, the United Kingdom and the Netherlands. Staes adds, “It is no coincidence that these are the more Eurosceptic members of the UK.”

Incidentally, the crisis may cause even more member states to start viewing Europe as cash cow. In the words of Staes, “There may be an increased temptation to try and access European funds.” At the moment the crisis is creating holes at a faster rate than the European Structural Funds can repair them. Last month Eurostat calculated that almost a quarter of the 500 million members of the European population were living at or under the poverty line in 2011. “More than 27 per cent of children in the EU are facing the risk of poverty or social exclusion,” was the conclusion of Laszlo Andor, the Hungarian European Commissioner for Employment, Social Affairs and Inclusion.