THE EU was mired in one of its biggest financial scandals last night after a €7 billion (£4.9 billion) aid programme for the former Soviet Union was damned by the leading European budget watchdog.

Outraged MEPs said that up to €5 billion of taxpayers’ money had been misspent, and they demanded that the European Commission should immediately suspend the programme, known as Tacis (Technical Assistance for the Commonwealth of Independent States).

The scheme has given about €500 million a year to 12 former communist countries in Eastern Europe and Central Asia to promote free markets and democracy since 1991.

The European Court of Auditors said yesterday that it could not give a positive approval of Tacis because the effectiveness of the funds was “very low”.

Responding to mounting concern about the aid programme, the auditors investigated 29 representative projects in Russia, the main beneficiary of the programme, and found that only nine actually achieved the objectives for which the EU was paying. In total, only 5 of the 29 projects had any lasting impact.

The investigators highlighted a heating and power project for a city that did not want it and another aimed at harmonising road standards between the Union and Russia that failed because the EU itself had no such common standard. Road-testing equipment supplied by the EU was unused.

One project invented a region on paper to meet the criteria for receiving EU funds. An EU-funded laboratory remained unused because the recipients did not have premises to store equipment while another was unused because the recipients could not afford the materials needed to run it.

In another case EU-funded technical equipment was sold off by the recipients because they did not know how to use it and did not have the necessary internet connection. Fitness equipment aimed at helping children ended up being used by Russian soldiers.

The report highlighted mismanagement, lack of financial discipline and monitoring of EU funds, but stopped short of claiming any evidence of deliberate fraud. Using the careful language of an auditor, Jacek Uczkiewicz, the author of the report, said: “There was ineffective usage of European Community monies. Our assessment is not positive. We think the situation is poor and requires a lot of discipline and attention to improve.”

Hans-Peter Martin, an MEP on the European Parliament’s budget control committee, said that the report showed that up to €5 billion of the total €7 billion given since 1991 had been misspent.

“It’s a serious scandal in the EU,” he said. “Why didn’t the commission do anything about it for 15 years? The commission should stop funding Tacis immediately. It has gone bad. We are talking billions that have disappeared. All the people who were working on those projects should be deeply ashamed.”

Chris Heaton-Harris, a Conservative MEP on the budget control committee, said: “It’s lots of money going down the drain. The EU does not have a very good track record of spending money well on these projects.”

The Commission acknowledged that mistakes had been made and said that it wanted to learn from the experience but noted that the projects had been hampered because they were launched during a particularly turbulent period in Russia. A spokeswoman said also that recent reforms had improved the situation.