Brussels - The European Union misspent about 3.3 billion euros (3.8 billion dollars) of its 2017 budget - a loss of 2.4 per cent - the European Court of Auditors (ECA) said.

Misspent funding is falling

The ECA audits whether the EU budget was spent in compliance with the bloc's rules. Misspending can occur as a result of accounting errors, or when funds go towards something other than what they were intended for. In rare cases, it is also due to fraud.

The proportion of misspent funding is falling, the auditors noted. The estimated level of error was 3.1 per cent in 2016 and 3.8 per cent in 2015. The decline was attributed to better auditing systems.

EU Budget Commissioner Guenther Oettinger welcomed the ECA report, arguing that it "proves that we spend our money well." The commission said in a statement that it estimates the final error level will be below 1 per cent, after taking into account corrections and recoveries.

"The EU budget is small - but it makes a big difference for millions of Europeans. It is a unique tool to protect, empower and defend our citizens in a fast-changing world where many of the most pressing issues go beyond the borders of a single country," said Oettinger.

The ECA annual report comes at a critical time for the EU, amid concerns in Brussels that growing euroscepticism could boost populist parties in next year's European elections.

Warning against promises that cannot be fulfilled

The bloc is also gearing up for traditionally fraught negotiations over its next long-term financial framework, and EU member states still need to reach agreement with the European Parliament on the 2019 budget.

EU spending totalled 137.4 billion euros in 2017.

As an example of misspent funds, the auditors cited a "large research institute in Germany" that had received EU money for a research project, but in fact spent the funds in part on unrelated costs.

Meanwhile, ECA chief Klaus-Heiner Lehne warned the EU against making promises it cannot fulfil, given that the bloc's budget is 50 times smaller than what member states spend annually.

"If we generate expectations which cannot be achieved, we lose credibility in the eyes of our citizens; more importantly, we lose their trust," he said.