By Francesco Guarascio

BRUSSELS (Reuters) - More than 4 billion euros (3.57 billion pounds)of European Union funds were misspent last year, EU auditors estimated in a report released on Tuesday, which highlighted poor checks in receiving states on how the bloc's funds are invested.

The annual assessment is likely to fan the heated debate about the bloc's next seven-year budget which Germany, the largest contributor to it, wants to cap below EU proposals meant to address new expenses on migration, social security and job-creation.

The European Court of Auditors (ECA), which is responsible for assessing the annual 155-billion-euro EU budget, estimated that an average of 2.6% of last year's EU expenses were irregular, up from 2.4% the previous year.

Because of that, auditors could not give a clean-sheet assessment of the budget and issued a "qualified opinion" on the regularity of payments, the court said in a note.

The president of the court, Klaus-Heiner Lehne, said the irregularities detected were not a reason for big concern as they represented a small amount of the budget and were mostly caused by complex payment rules.

However, he warned about sectors in which higher levels of errors were found, especially when EU funds were paid as reimbursements for research, development projects in poorer regions of the bloc or aid to emerging economies outside the EU.

SAMPLE CHECKS

In some of these fields, irregularities amounted to around 5% of total spending, the court said. It could not provide more precise figures because its findings were based on sample checks and statistical estimates.

Irregular payments are usually the result of mistakes or the wrong application of EU rules but in the worst cases they can hide full-fledged fraud. Only for a handful of payments did the court raise concerns to investigative authorities, the report said.

Last year, the EU anti-fraud office OLAF recommended the recovery of 371 million euros of EU funds because of criminal abuses.

The irregularities detected are likely to represent a fraction of all errors in EU spending because of the limited resources available to auditors to conduct checks.

Authorities in EU states where EU money is spent are not always very keen to help. Irregularities in spending could lead to reimbursements of funds that in some EU states, especially in the east and the south of the bloc, are crucial for local economies.

EU auditors found more than 70% of the irregularities emerged last year in spending on poorer regions of the bloc, the ECA report said, while authorities of the 28 EU states detected the remainder.

In some cases, EU auditors detected errors in projects that had already been approved by national authorities. "Member states' auditors need to get better at doing their checks," said one EU official.

(Reporting by Francesco Guarascio; editing by Emelia Sithole-Matarise)

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