Billions of euros unchecked or simply fraud in the EU? Five countries under scrutiny by the Court of Auditors – and no obligation to repay!

The fatal system behind Europe's biggest financial black hole: After the ARF billion-euro boondoggle, the EU is already planning the next fund without any review

Hailed as a historic triumph of European solidarity, the EU's Corona Recovery Fund (ARF) is increasingly becoming an uncontrollable bottomless pit of money. €723.8 billion was intended to modernize Europe after the pandemic – but as the European Court of Auditors reveals in a series of damning reports, basic control mechanisms are lacking. The most fatal problem: funds often flow based on mere claims, without any detailed examination of their actual use. From non-existent audit structures in countries like France and Spain to billions misappropriated and systematic breaches of procurement regulations: Europe's taxpayers are financing a system of organized irresponsibility. A deep look behind the scenes of what is arguably the biggest administrative control failure in the history of the European Union – and why the EU Commission nevertheless intends to repeat this mistake.

When Brussels isn't looking: The systematic failure of controls over the largest EU fund of all time

The architecture of a failed investment: Billions without proof – Europe's taxpayers finance a system of organized irresponsibility

When the European Union launched the Recovery and Resilience Facility (ARF) in February 2021, the largest spending program in its history to date, the political message was clear: Europe would emerge from the coronavirus crisis stronger and more united. The instrument was designed to stimulate investment, accelerate reforms, drive digitalization, and finance the climate transformation. A total nominal volume of €723.8 billion, divided into grants and loans, was made available for this historic project.

Another structural weakness is the recovery regime. Even if member states identify erroneous or abusive spending by end recipients and reclaim the funds, they are not obliged to return these funds to the EU budget.

But behind this impressive figure lies a less glamorous reality. The European Court of Auditors (ECA) has systematically demonstrated in a series of special reports and analyses that the ARF not only suffers from significant transparency deficits, but that the control mechanisms for the use of funds have largely failed – and in some cases simply did not exist. What was politically celebrated as a triumph of European solidarity proves, upon closer examination, to be an administrative failure of control with consequences amounting to billions for the European taxpayer.

The core problem lies in the very design logic of the ARF itself: payments to member states are not based on verifiable expenditure, but rather on the alleged achievement of predefined milestones and targets. This model of "cost-independent financing" allows disbursements without requiring detailed scrutiny of how the funds are actually used. Member states receive the money when they claim to have reached certain milestones – whether this is actually the case and whether applicable procurement and state aid rules have been observed was, for a long time, a secondary concern.

Fraud, irregularity, or failure? A legal distinction

The question gets to the heart of the problem – and the answer is more complicated legally than politically.

What is legally considered "fraud"

EU law distinguishes between three categories, which are often blurred in practice. First, there is fraud in the narrower sense: deliberate deception to the detriment of the EU budget, punishable under national law and prosecuted by the European Public Prosecutor's Office (EPPO) and OLAF. Second, there is corruption and conflicts of interest, which are also criminal offenses. Third, there are irregularities: violations of EU law without demonstrable intent – ​​i.e., administrative errors, flawed procurement procedures, and inadequate documentation.

The Court of Auditors explicitly emphasizes in its special report 09/2025: The measured error rate is not a direct measure of fraud. The 3.6 percent of EU funds misused, as reported in the 2024 annual report, comprise mostly irregularities, not proven criminal fraud.

Where the border blurs

In practice, however, the line is considerably blurred. If a member state like Spain systematically uses ARF funds for pension payments and social benefits that do not correspond to the intended purpose of the funding, this constitutes a serious misappropriation of funds from an EU law perspective. Whether this is legally considered fraud depends on proving intent – ​​and this proof is precisely the problem, because: the control systems were so weak that a clear reconstruction of the intent level is hardly possible.

In the 307 fraud cases initiated by the European Public Prosecutor's Office (EPPO) in connection with the ARF, this intent is being specifically investigated. In 2024, the courts ordered the confiscation of €232 million in illegal proceeds – these are proven cases of fraud. But they represent only the tip of the iceberg, because the vast majority are never prosecuted.

The real scandal: institutional failure

The honest answer is therefore: some of it is demonstrably fraud, but a far larger part is organized irresponsibility. If the Commission has not set minimum requirements for national control systems from the outset, if member states receive money without having to prove how it was used, and if even reclaimed funds do not flow back into the EU budget – then the system is designed in such a way that it structurally facilitates abuse, whether with or without criminal intent.

The Court of Auditors uses more diplomatic language, but means the same thing: EU law requires accountability and transparency, and both were largely lacking in the ARF program. In other words: The system was designed in such a way that no one really had to look closely – and many apparently didn't want to.

Five countries in the focus of the Court of Auditors

With its Special Report 09/2025, published on 10 March 2025, the European Court of Auditors conducted an exemplary in-depth investigation. It examined the control systems of five Member States – France, Italy, Croatia, Spain, and the Czech Republic – which are among the largest recipients of ARF funds and had submitted payment applications by the end of April 2023 containing targets relevant to public procurement and state aid rules. The Court of Auditors' overall assessment was damning: despite improvements in its audit activities, the European Commission was unable to obtain sufficient assurance that Member States had effective internal control systems.

The report bears the factual yet telling title "Systems for Ensuring Compliance of ARF Expenditure with Public Procurement and State Aid Regulations: Improvements to be Seen, but Systems Still Inadequate." Behind this bureaucratic-sounding formulation lies a serious finding: In several of the countries examined, gaps were found that cannot simply be explained by random errors, but rather point to structural deficiencies in the audit architecture.

The selection of these five countries was not arbitrary. France, Spain, and Italy are among the main beneficiaries of the ARF. Spain was promised a significant amount of ARF funding; as early as July 2025, €626.6 million from the fifth tranche of grants was suspended after irregularities were discovered. Spain was then given six months to implement corrective measures. Furthermore, reports from 2026 indicate that around €8.5 billion from the ARF program in Spain may have been used for purposes other than those intended, including pension payments and social benefits.

How the control system failed in the initial phase

The Court of Auditors identifies the origin of the problem as early as the inception of the ARF. When the regulation was adopted in 2021 and the first national recovery and resilience plans were approved, the Commission simply failed to assess Member States' control systems for public procurement and state aid. The relevant Commission guidelines from 2021 provided no details on how controls and audits of compliance with these rules should be implemented. The scope, quality, and timing of the controls were not specified.

Particularly revealing is an institutional self-contradiction: While the Commission did use an internal checklist to verify whether member states had indicated that they had corresponding procedures in place, it did not actually examine these procedures because, according to its own statement, this would have gone beyond the formal requirements of the regulation. In other words, the mere assertion of operating control systems was sufficient. No substantive review took place.

The 2021 audit strategy of the Directorate-General for Economic and Financial Affairs (DG ECFIN) explicitly stated that compliance with legislation at both EU and national levels was the responsibility of the Member States – and that the Commission's audit strategy accordingly did not cover these issues. The Commission's work program for audits focused on fraud, corruption, and conflicts of interest; there were no specific controls on Member State public procurement or state aid schemes until September 2023. This illustrates the classic pattern of institutional diffusion of liability: everyone points the finger at someone else, and ultimately, no one is doing the checking.

Country-specific findings: A mosaic of failure

The five countries studied not only received significant amounts of ARF funds in quantitative terms, but also exhibit qualitatively very different, yet all inadequate, control architectures.

In France and Spain, the control systems relied entirely on existing national budgetary control authorities. In the Czech Republic and Italy, implementing bodies assumed responsibility, each designing its own control arrangements. In Croatia, the control systems largely correspond to the institutional arrangements already used for other EU funding flows. This diversity sounds like flexibility, but in reality, it is the opposite of consistency: it creates a confusing patchwork of national practices that does not allow for uniform control.

In France, the Court of Auditors found serious deficiencies in most of the implementing bodies examined and in their audit procedures. No evidence of controls or audits of procurement procedures could be found – not even basic system audits. France, which receives substantial funding from the ARF, had not even had its public procurement control systems under the ARF reviewed by the Commission at the time of the audit. Particularly concerning is that, despite the Court of Auditors' own investigation into significant deficiencies in France, the Commission had classified the country as low-risk in its risk assessment – ​​simply because no audit work had yet been carried out.

Audits were conducted in the Czech Republic, but they did not cover all relevant risks, such as the artificial splitting of contracts or changes to contract terms. Such practices are classic methods for circumventing procurement thresholds and undermining procurement rules – and precisely for that reason, they are particularly relevant for audits.

In Italy and Spain, the Court of Auditors found problems related to the timing of the audits: audits were only carried out after payment demands had been issued, thus largely negating their deterrent and corrective effect. Documentation problems further exacerbated the situation.

The picture was somewhat more favorable in the area of ​​state aid: controls were largely in place and covered the main risks. However, several audit bodies either did not conduct any checks or only carried them out after the payment application had been submitted, resulting in a lack of independent assurance before the first ARF payments were made to the member states.

The paradox of the declaration of reliability

Particularly revealing is the Court of Auditors' finding regarding the Commission's annual confidence statements. Despite the serious deficiencies identified in the control systems of the Member States, the Commission's confidence statements up to June 2024 contained no reservations relating to the Member States' control systems for public procurement and state aid.

Translated into simpler terms: The Commission has issued certificates of good standing for years, while the Court of Auditors has simultaneously identified significant gaps in oversight. This is not merely a technical oversight problem, but an institutional credibility crisis. When the Commission offers assurances of proper use of funds in its official annual statement, even though these assurances do not actually exist, it undermines the entire foundation of trust in European fiscal policy.

The Commission explains this discrepancy by stating that the ARF Regulation does not contain an explicit obligation to cover compliance with procurement and state aid rules in the declaration of reliability. The Court of Auditors disagrees, pointing out that the 2023 declaration of reliability has significant limitations in the area of ​​state aid and public procurement. This is a classic case of institutional disagreement – ​​the auditing body (the Court of Auditors) and the audited body (the Commission) arrive at different assessments of the same facts.

The structural dilemma: speed versus control

To understand the extent of the problem, one must consider the fundamental design principle of the ARF. The "cost-free financing" model was deliberately chosen to enable rapid disbursements. Instead of time-consuming audits, confirmation that certain reform milestones have been reached is sufficient. This approach was intended to avoid bureaucratic delays and facilitate reforms politically.

The price of this speed principle is a structural weakness in controls. If the only checks are whether certain targets have been formally met, rather than whether the money was actually spent in accordance with the rules, considerable scope for manipulation arises. Member States can formally meet milestones without the money actually reaching the intended recipients or without complying with European procurement and state aid rules.

Specifically, this means that a Member State can access ARF funds as long as it reports that it has implemented certain reform objectives – even if the awarding of the associated contracts systematically violated EU procurement law. And even if the Commission or national auditors identify such violations, the Commission's recourse under the basic structure of the ARF is limited: it can reduce funding in cases of serious systemic flaws, but cannot remedy individual procurement violations unless there are serious irregularities in the form of fraud, corruption, or conflicts of interest.

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The recovery cycle without return flow

Missing returns: How the EU budget and member states are decoupled

Another structural weakness is the recovery regime. Even if member states identify erroneous or abusive spending by end recipients and reclaim the funds, they are not obliged to return these funds to the EU budget. The Court of Auditors describes this mechanism as a significant safeguard: while member states theoretically bear the responsibility for recovery, the reclaimed money remains within the national system and does not flow back to Brussels.

In France and Spain, funds are not reclaimed from the final beneficiaries except in cases of serious irregularities. In other Member States, where at least some recovery takes place, these funds are neither returned to the EU budget nor deducted from future ARF payments. This reduces the deterrent effect to a minimum: those who know that even discovered violations will not have financial consequences for their national budget have little incentive to implement particularly rigorous controls.

The Court of Auditors' message is clear: this structure provides less protection for the EU budget than it could and should. Neither the deterrent effect nor the mechanism for recovering funds is effective. The EU budget bears the financial risk but has no guarantee of a direct recovery of the money.

Fraud prevention: Systems without substance

In a parallel special report (06/2026), the Court of Auditors examined fraud prevention measures within the €650 billion ARF fund and reached similarly sobering conclusions. The anti-fraud systems of the Member States are inconsistent, often delayed, and lack the necessary rigor to effectively combat fraud.

A key problem is the insufficient use of data analysis tools. The Commission made the data mining tool Arachne available to member states – a system designed to identify suspicious patterns in procurement data. However, only 65 percent of the auditing and contracting authorities surveyed use Arachne at all, 16 percent rely on national tools, and 19 percent do not use any data mining tool for fraud detection. Given a fund volume of €650 billion, this is a worrying figure.

The European Public Prosecutor's Office (EPPO) has investigated 307 fraud-related cases connected with the ARF program since its launch. However, as the Court of Auditors points out, the true extent of fraud within the ARF cannot be precisely estimated – precisely because of incomplete data and a lack of uniformity in reporting among member states. This means that the Court of Auditors does not know how much fraud has occurred, and neither does the Commission. Europe is operating in the dark.

OLAF and EUStA: Anti-fraud authorities with communication problems

Another special report (26/2025) by the Court of Auditors from December 2025 examined the cooperation between the two central EU anti-fraud authorities – the European Anti-Fraud Office (OLAF) and the European Public Prosecutor's Office (EPPO). The conclusion was sobering: although the respective roles are clearly defined, gaps in the exchange of information significantly reduce the effectiveness and timeliness of investigations.

Between 2022 and 2024, a total of 27,000 reports of suspected fraud were received. This sounds like an active system – until you look at the processes behind it. The current regulations can lead to suspected cases being reported twice. It is not clearly defined to whom cases should be reported first. The procedures for forwarding cases from OLAF to the EPPO are cumbersome, and the exchange of information is limited. Furthermore, the Commission does not consistently follow up on the results of fraud investigations. In 2024, courts ordered national authorities to confiscate €232 million in illegal proceeds – but how much of this was actually recovered remains unclear.

The Court of Auditors recommends a simplified investigation system with a central archive, improved analysis of fraud reports, and stronger measurement of the funds actually recovered. This sounds like common sense – and it is precisely for this reason that it is telling that this recommendation only had to be explicitly stated in 2025.

The annual report: Six billion euros spent illegally

Beyond the ARF context, the Court of Auditors' 2024 annual report paints another troubling picture. The estimated error rate in EU spending in 2024 totaled 3.6 percent – ​​equivalent to around €6 billion that was not used in accordance with EU rules and national regulations. Non-compliant spending is considered significant once the threshold of 2 percent is reached.

This marked the sixth consecutive year that the Court of Auditors issued a negative audit opinion on EU spending. The area of ​​cohesion policy was particularly affected, with an error rate of 5.7 percent. For high-risk expenditure – i.e., payments based on reimbursements – the error rate was 5.2 percent, representing 68.9 percent of total expenditure. The most frequent causes of errors were payments for ineligible costs, projects, or beneficiaries, as well as violations of public procurement and state aid rules.

It is important to emphasize what these figures do not mean: they are not a direct measure of fraud. The error rate encompasses all expenditures that were not fully compliant with regulations – including administrative errors, missed deadlines, and incomplete documentation. Nevertheless, an error rate of 3.6 percent in a total budget of almost 170 billion euros is not insignificant, and the persistence of these figures over six years indicates structural weaknesses, not random outliers.

The transparency problem: Nobody knows where the money goes

In May 2025, the Court of Auditors presented a comprehensive analysis of the ARF, which highlighted another dimension of the problem: the fundamental lack of transparency in the use of funds. Despite a total budget of €650 billion and a duration of over four years, there was hardly any information available about the actual results and none at all about the actual costs of the funded measures.

Seventy-two percent of the milestones set by the European Commission had not yet been met one year before the program's expiration. Thousands of recipients of the funds, including numerous companies and consortia, remain unidentified. The Commission does not collect data on the amounts actually paid for individual measures – even when member states possess such data. In May 2026, the European Parliament denounced the situation as a scandal and threatened the Commission with consequences.

Particularly serious doubts exist in the three largest ARF recipient countries. In Italy, it is being called a "money pit" after €150 billion were largely wasted. In France, according to auditors, it was especially difficult to obtain accurate information about recipients. And in Spain, media reports indicate that €8.5 billion from the ARF program were misappropriated – including for pension payments and social benefits that did not correspond to the investment purpose of the recovery fund.

Economic consequences: When perverse incentives are institutionalized

From an economic perspective, the documented failure of control over the ARF raises fundamental questions about the incentive structure of European transfer programs. The basic architecture creates a classic principal-agent problem: the Commission, as the principal, delegates the use of funds to the member states as agents, without having sufficient control mechanisms to ensure that the agents act in the principal's interests.

The outcome is predictable: if member states receive money without being vetted for compliance, and if even detected violations do not result in financial returns for the EU budget, a structural moral hazard problem arises. Why should a national finance minister build expensive and politically inconvenient control systems if the likelihood of being held accountable for violations is low?

The consequence is a gradual erosion of the European legal principle in the area of ​​budgetary policy. If the awarding of public contracts financed with EU funds is not consistently bound by EU procurement law, this distorts the internal market, disadvantages compliant companies, and creates opportunities for politically motivated allocation of funds, corruption, and cronyism.

Furthermore, the lack of transparency has significant economic consequences. If neither the Commission nor the member states can precisely specify the economic results achieved by the €650 billion, an evidence-based evaluation of the program is impossible. Decision-makers can neither measure the return on investment nor draw evidence-based lessons for future programs. This is particularly problematic because the European Commission plans to continue using the ARF model for future budgets and programs – and even to repeat it for a new armaments program with a budget of up to €150 billion.

What the Court of Auditors recommends – and what the Commission is doing

The special report 09/2025 contains five concrete recommendations from the Court of Auditors, which together provide a comprehensive picture of the necessary reform measures.

First, for future instruments with non-cost-linked funding, the Commission should, from the outset, establish specific requirements for Member States' control and audit systems – including details on coverage, quality, timeline, documentation, and corrective measures. Second, for the remaining duration of the ARF, the Commission should clearly communicate that Member States must provide evidence of controls on key risks no later than the time of payment request. Third and fourth, the Commission's controls themselves should be strengthened – through more transparent reporting, clearer risk assessment methods, and a higher risk classification for systems where critical findings have been identified. Fifth, uniform remedies for procurement infringements should be established, to be applied equally by all Member States.

For its part, the Commission has been gradually improving its audit strategy since mid-2023 and has introduced specific checklists for auditing Member States' public procurement and state aid systems. By May 2024, it had applied these checklists in 14 Member States. This is progress, but according to the Court of Auditors, it is still insufficient: the audits did not cover all relevant procurement areas, the sample size was not clearly defined, and in many cases, the audits started too late to be included in the reliability assessment.

The historical context: Control as a permanent weakness

It would be wrong to view the problems described as a specific ARF pathology. Rather, they are part of a long tradition of weaknesses in European budgetary control. According to the Court of Auditors, violations of public procurement and state aid rules are a persistent problem in the area of ​​cohesion policy and other EU budget expenditures. What distinguishes the ARF from its predecessor programs is not the nature of the problems, but their sheer scale – resulting from the unprecedented size of the fund and the deliberate decision to prioritize speed over control.

The error rate in EU spending was still at 5.6 percent in 2023 – the highest level in years. It fell to 3.6 percent in 2024, which the Court of Auditors considers progress, but at the same time criticizes as still being too high. The fact that the EU budget has received a negative audit opinion for six consecutive years illustrates that these are not random outliers, but rather deeply rooted institutional structural problems.

From a historical perspective, it is remarkable that Europe has apparently not fully internalized the lessons from the structural fund scandals of previous decades. The fundamental mechanisms – overly vague requirements, insufficient control, weak recovery regimes, and excessive delegation to national systems without minimum quality standards – are the same ones that already led to significant outflows of funds into questionable projects in the 1990s and 2000s.

A cautionary tale for future EU mega-programs

At the end of its analysis of the ARF, the Court of Auditors gives a clear warning for the future: the Corona fund must not be repeated in this form. But that is precisely what the Commission is planning. For the European rearmament agenda adopted in March 2026, it intends to take on debt again and distribute up to €150 billion to the member states – according to the same financing model as the ARF, without mandatory parliamentary oversight.

The question that arises is not a technical one, but a political one: How much control is Europe willing to sacrifice for speed of action? The ARF was politically conceived as a demonstration of European capacity for action. However, its failures in control show that speed of action without robust governance structures does not signify strength, but rather negligence.

Europe faces a fundamental dilemma: the larger and faster EU programs become, the greater the potential damage from a lack of or weak controls. At the same time, the increasing complexity of the programs raises the demands on control systems – and so does the temptation to use this complexity as an excuse for neglecting controls.

The smart economic answer lies not in abandoning large-scale EU programs, but in consistently investing in governance capacities before the billions are disbursed. That this is possible is demonstrated by the member states that performed comparatively well in the ARF review – showing that functioning control systems need not be incompatible with the rapid disbursement of funds, provided the political will and institutional capacity are in place.

The European Court of Auditors fulfills a fundamental democratic function with its reports: it compels Europe to confront its own institutional reality. The question is whether political decision-makers draw the right conclusions from them – or whether, as in the past, they simply acknowledge the recommendations and then move on to the next major program without having truly addressed the structural causes of the control failures.