The UK faces up to £1bn of penalties from the European Commission because of mistakes by government departments.

The National Audit Office says £398m of "financial corrections" have already been made and a further £601m has been set aside to cover further penalties.

The EC withholds the money from countries it believes has not met rules on allocating money from the EU.

Most of the penalties from 2008/9 were due to well publicised problems with agricultural schemes, the NAO says.

But the Department for Communities, the Wales Office, Scotland Office and Northern Ireland Office also attracted penalties for their use of the European Regional Development Fund.

The NAO report is the first time all the withheld payments have been added together for the time period - they relate to mistakes made before March 2009 but go back years.

In the NAO report on Britain's use of EU funds, Auditor General Amyas Morse said the "irregular" payments meant he had to qualify his verdict on the accounts.

'Sound financial management'

Some payments are disallowed every year but the NAO says £1bn is unusually high.

The government says that the penalties came under a previous administration.

Sources say efforts have been made to improve accounting, and reduce the number of mistakes paying out EU money and they are optimistic future penalties will not be so large.

In a written ministerial statement, Economic Secretary to the Treasury Justine Greening said the government was "determined to ensure sound financial management of all EU funds".

She added: "The government is fully committed to transparency in the use of EU funds in the UK and to strong accountability for receipts of EU funding to the UK Parliament, to strengthen the audit and Parliamentary scrutiny of the UK's use of EU funds."