The impact of fraud and corruption on the level of absorption of EU funds (2014-2020)

Abstract

Background: Fraud and corruption in connection with European funds allocated to the Member States of the European Union have always been a source of concern for those directly involved in this process. In view of the huge sums of money made available for the next period (EUR 1,824.3 billion), these concerns are taking on new dimensions.   Objective: This paper examines the extent to which the level of fraud reported by Member States in relation to European funds in the 2014-2020 period, as evidenced by the Commission's annual reports on the protection of the EU's financial interests (PIF reports), and the level of corruption as shown by the World Bank is connected with the level of absorption rate of these funds during the same period. The main purpose was to determine the link between these data, respectively to what extent the (reported) level of fraud and the (estimated) level of corruption influences (and in what way) the level of the absorption rate.   Method: Using descriptive statistics, the paper analyses the rates reported by the Commission and the Member States on the level of absorption of European funds, both by reference to an objective indicator, namely the number of fraud reported by Member States, as evidenced by the 2014-2020 PIF reports, as well as by reference to a subjective, perception-based indicator, namely the World Bank corruption measurement index - Control of Corruption calculated at the level of each Member State in the period 2014-2020. Subsequently, in order to verify the robustness of this relationship, these data are analyze in STATA.   Our conclusions: confirm that for the period 2014-2020, the level of absorption of European funds is negatively influenced by corruption. An element of novelty is the fact that an objective indicator has been included in this equation, consisting in the number of frauds reported by the states regarding these funds. We noticed, that the level of absorption rate is better explained by an objective indicator (in this case The European Funds Fraud Index) than a subjective fraud indicator (in this case the Control of Corruption). Therefore, when analyzing the cause of EU funds absorption rates, it would be advised to look for and construct indicators that rely on facts rather than perception.