EU Budget Fraud Could Top $6.5 Billion: Study

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The European Union could be losing more than 5 billion euros ($6.5 billion) a year from its budget due to fraud, vastly greater than currently estimated, according to a damning new report by the U.K.'s upper house of parliament.

"We found that the EU's anti fraud system has a number of weaknesses," the Lords' Justice, Institutions and Consumer Protection EU Sub-Committee said in a report on Wednesday.

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The House of Lords committee concluded that the 404 million euros figure cited by the European Commission in its annual report offers only a glimpse of the levels of fraud against the EU.

"Based on our evidence it is suggested that the actual figure is around 5 billion euros, but it may be even more," it said.

Both the member states of the Union, whose onus it is to protect the EU's financial interests, and OLAF (Office de Lutte Anti-Fraude), the EU's own anti-fraud body were roundly criticized in the report.

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The lack of enthusiasm displayed by EU states in reporting fraud to the European Commission together with inconsistency over the definition of fraud is undermining the EU's efforts to grasp the full extent of this problem, it said.

"Evidence suggests that some Member States do not take their anti-EU fraud responsibilities seriously," it said.

"Their responsibilities should include: looking for fraud against the EU's budget, informing the relevant EU authorities when they find it, and acting on referrals from the EU's own anti-fraud body OLAF, which remains an agency of limited powers."

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OLAF is currently ineffective with budgetary restrictions meaning that it has to be selective about which cases it pursues, according to the report. It will remain "hamstrung" in its ability to protect the EU's financial interests if it continues to be seen as an institution whose recommendations are never followed up, it said.

By's Matt Clinch; Follow him on Twitter @ mattclinch81