Ultimate responsibility for implementing the budget lies with the European Commission.
But in practice, some 76% of the budget is spent under what is known as 'shared management', with individual EU countries actually distributing funds and managing expenditure.
A set of checks and balances is in place to ensure the funds in question are managed properly and in accordance with the rules:
The Commission must recover all unduly paid funds, whether resulting from error, irregularity or deliberate fraud.
National governments are equally responsible for protecting the EU’s financial interests. This involves cooperation with the Commission and its Fraud Office (OLAF).
How is the budget managed?
The Commission can manage payments from the budget in 4 ways:
Centralised direct management – money is spent directly by Commission staff (selecting contractors and awarding grants, transferring funds, monitoring activities, etc.).
Centralised indirect management – external management, often by agencies – used when the Commission can't implement the budget directly.
For example, it wouldn't be practical for the Commission to directly award study grants, due to the large number of beneficiaries. In such cases, executive tasks are delegated to agencies, which have their own legal personality (i.e. different from the EU) and are linked to the Commission by an agreement.
The tasks delegated to these agencies must be clearly defined and the Commission must put in place tight supervision and control mechanisms.
Shared management – budget implementation is delegated to EU countries.
Decentralised management – the same but for non-EU countries.
This only happens if the Commission is satisfied the countries will follow the rules and the principles of sound financial management, and a clearance of accounts/financial correction mechanism is in place to correct potential irregularities.
Joint management – implementation delegated to intergovernmental/international organisations which have internationally accepted standards.
A real exception, since it involves transferring EU funds to a 'common pot' with money from other donors, meaning that there is no way to trace exactly how the EU contribution has been spent.
In each of these cases, the Commission must keep tight control over the way the EU's budget is spent and take appropriate steps to enforce the principle of sound financial management